Weekly Reports | Jun 14 2024
Weekly Broker Wrap: Experts talk big on US financial dominance; Jarden and Canaccord dissect the outlook for Australian retailers; and Barrenjoey lends its ear to management from the REITS sector.
-Speculation about the end of US dominance looks (very) premature
-Retailers pulling out all stops to drive earnings, will the tax-cuts save them?
-Property markets continue to adjust to higher-for-longer interest rates, are we there yet?
By Danielle Ecuyer
US dominance: the trillion-dollar elephant in the room
The bears are congregating around several narratives including Ai bubbles, the demise of US treasuries and the US dollar with American exceptionalism in decline.
Not so, according to Oxford Economics who articulates the “enduring appeal” of US Treasuries to Japanese investors.
The premise is simple. Demand dynamics are unlikely to shift with the large yield gap differential between US treasuries and Japanese JGBs, even with the recent increase in Japanese yields.
Japan is the largest holder of US treasuries at around 49% of total ownership by foreign bond investors.
The rise in yields over 2022 caused investors and banks to dump US treasuries, only to return to the market in 2023 as the Fed’s hiking cycle entered the final phase.
Life insurers are the exception, due to the buying of longer dated JGBs ahead of foreign bonds.
Oxford Economics thinks it is unlikely the 10-year JGB will reach 2% from the current 1% level, unless term premia rise substantially, or simply put: the additional yield investors demand to hold a 10-year JGB rises a lot.
Global liquidity continues to rise and boosts US dollar assets and the currency
The lauded global expert in global liquidity, Michael Howell of CrossBorder Capital entered the US dollar debate this week.
Howell stated the latest capital flow data point to ongoing strength in foreign money inflows into US assets, up until the end of May this year.
No letup is anticipated. The US Federal Reserve and Treasury are expected to ease and increase liquidity, respectively, into the second half of 2024.
The US monetary inflows typically adjust via Wall Street in terms of higher asset prices, with Howell stressing he does not advocate ‘value investing’ because “fast-moving footloose border flows cause ‘momentum investing' to drive returns.”
Notably, Crossborder Capital’s piece, “China Sneezes…The Dollar Milkshake Blows-Off” depicts how China’s growing trade surplus underpins the US dollar, alongside more conventional views of slowing global growth supporting the US dollar.
While some may question the global liquidity analysis, anecdotally the US stock markets have remained resilient with the indices hitting all-time highs, driven to a large part by technology stocks and those specifically in the GenAi megatrend and ‘momentum’ trade.
Howell forecasts Fed liquidity will rise by around 12% in 2024 on 2023. and experience over 20% annualised growth in the second half of 2024.
Hold onto your hats!
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