Top trade partners as of 30 June 2018:
- China: 15.2% (strategic competitor)
- Canada: 15.1%
- Mexico: 14.6%
- Japan: 5.1%
- Germany: 4.4%
The next 10 years could result in the below:
- Mexico (25%)
- Canada (20%
- Japan (7%)
- South Korea (5%)
- Great Britain (4%)
Geographically the richest & most securable in the world, with:
- One of the largest agricultural production basins in the world
- Largest interconnected river system in the world
- Ocean moats on either side
- Mountains & deserts to the South
- Forests & lakes to the North
And we know how much China relies on debt to grow its economy.
Rate of change slowdown in debt growth = slowdown in economy.
MS - "Our strategists are staying long US duration via real and nominal rates, long UST 5y vs. OIS, and short the US Dollar."
Citi - "Clients are not enthused after reviewing the responses of more than 70 institutions. Median cash positions have stayed flat at 5% of AUM over the past three months while average levels have edged higher."
MS - "Growth synchronicity peaked in January and since then has turned steadily downward. Global trade volumes fell 6pp over 2018 and are at their lowest level since the financial crisis."
While the appetite for foreign investment into the US is in decline, US foreign asset holders have been repatriating at a comparatively faster pace. As a result, net capital flows into the USD are positive.
Citi - "We remain worried that the senior loan officers’ survey (SLOS) is indicating some sort of slowdown in the latter part of the year given the typical 9-month lag. The SLOS generally leads job growth as well & capital investment & also affects industrial production."
Kinda what happens when you exports collapse...🤣
MS - "proprietary Leading Earnings Indicator suggests that earnings growth is poised to slow markedly. This suggests that equity market gains will have to come from valuations (in turn driven by an influx in liquidity), not from earnings growth."
MS - "To adjust for QE, we took the Atlanta Fed’s work on the shadow FF rate. We then took the Fed’s estimate that every $200B of QT is worth an additional rate hike & added it to the FF rate. The result can be seen in with the darker line showing the impact of QE & QT."
10 year minus
- 3 month LIBOR USD
- USDJPY 3 month hedging cost
- USDEUR 3 month hedging cost
MS - "We see an increasingly risky environment as deteriorating data and a dovish Fed stand off. Extreme moves in momentum suggest crowding risk in defensives, quality, and secular growth as the market waffles on the growth outlook. We'd manage exposure carefully."
MS - "As uncertainty around trade tensions remains unresolved, trade growth is likely to stay subdued, in our view. Manufacturing PMIs new orders and export orders declined further in June. Capital goods imports growth remains weak. Risks remain skewed to the downside."
MS - "Still, the broader picture remains one of softness. The latest OPEC+ extension will take the current output agreement into its fourth consecutive year. The fact that this is required highlights the weakness in the underlying supply/demand fundamentals."