All into Account

Equity Strategy: Stalling USD and China reopening tactically support EM trade - we are still long Miners

Speaker: Mislav Matejka, Head of Global Equity Strategy.
 
Our key call at the start of Q4 was to look for the likely peaking out in bond yields, as we believed the disinflation phase has already begun. The potential turn in yields and in inflation has implications for equity P/E multiples, which could find the floor, and for the Growth/Tech part of the market to show a better trading performance. USD typically had an inverse correlation with equities, and any stabilization there would be a support. A peaking in Fed hawkishness would go a long way in taking the upside away from the USD. EM have this year lagged the DM, with the China drag the most notable. Even ex China, EM have underperformed the DM. The potential shift in USD fortunes would in particular be relevant for EM equities, as these historically had a strong inverse correlation to the USD. In addition, while the longer-term picture for China looks challenging given the structural growth downtrend, corporate decoupling and geopolitical uncertainty, the reopening is likely to be an important trade. This is especially the case given the extremely easy comps, such as near record low property starts. Policy responses are ramping up in order to set floors for real estate and credit, and sentiment is rock bottom. How to play this? China and Taiwan equities are down 30% ytd in USD terms, with Chinese P/E relatives at lows. Indirectly, European markets are the beneficiaries of any improvement in China prospects – FTSE100 remains our top country pick. We started this year OW on commodity sectors, and China reopening supporting the turn higher in activity indicators is welcome. Energy (OW) continues to have attractive valuations, even as our commodity team doesn’t see upside to Brent from here. We remain OW Miners in particular, looking for further outperformance on top of 25%+ so far ytd. Key metal inventories are rather low, the sector is a clear play on China reopening, weaker USD, and it still looks attractively priced, with very good balance sheets and a prospect of extraordinary capital return. Overall, we believe the EM risk-reward is tactically more positive given the above, but the longer-term outlook remains challenging, and our China economist is looking for a relatively soft 2023 growth outcome.
 
This podcast was recorded on 21November 2022.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4266987-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.

All into Account: ‘Is the Metals rally done?’ with Greg Shearer, Head of Metals Research

Greg joins us to discuss the recent rally in Metals which appears to be fizzling. Factoring good news on China COVID and property policy, and a softer dollar, we assess whether current levels make sense.
 
Speakers:
Thomas Salopek, Global Cross Asset Strategy
Greg Shearer, Head of Metals Research
 
This podcast was recorded on November 17, 2022.
This communication is provided for information purposes only. Institutional clients can view the related reports at
https://www.jpmm.com/research/content/GPS-426
For more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved

Equity Strategy: Multiples at market trough - International equities show more favourable tradeoff vs the US

Speaker: Mislav Matejka, Head of Global Equity Strategy.
 
We reiterate our call that equities are helped by the likely peaking out in bond yields and a turn lower in inflation, which will lend support to P/E multiples, as well as allow the Growth style/Tech to stabilize. This goes along with still record negative investor sentiment, light positioning, supportive seasonals into year end, China reopening and the likelihood of smaller than typical earnings contraction. In this note we address what P/E multiples were typically seen at market troughs. Looking at forward consensus P/Es in the past 4-5 recessions, for Eurozone the median was 9x, and the same for the UK - 9.1x. A few weeks ago we were very close to these levels, we touched 10.2x for Eurozone, a point away, and as low as 8.7x for UK, outright below. We do not think that European P/E multiples need to move lower than these levels. For the US, in the past 4 downturns the forward P/E multiples troughed between 10x and 14x, vs the latest reading of 17x, and the low reached in October of 15.6x. This is somewhat higher than the past lows recorded. Having said that, the P/E contraction in SPX so far, from cycle peak to recent low, of 7 points, ranks on par with past recessions. The important consideration for sustainable P/Es will have to be the inflation path. If inflation proves to be much stickier than we think, real yields will need to go higher, pushing P/E multiples lower. Our call remains that inflation will come off, and follow growth lower, as is typically the case. In relative terms, we note that International markets continue to trade at a significant discount to the US. Eurozone forward P/E relative to the US is at 0.67x, lower than what was observed during any of the past 4-5 crises, and even like for like, sector neutral, Eurozone trades at only 0.78x P/E of the US. The clear valuation advantage is one of the reasons why we do not believe Europe, and International stocks more broadly, are an easy short vs the US, even if one expects overall market downside. We started the year looking for regional convergence between International and the US equities, and believe this will continue to work, from here, likely even in USD terms, and not just in lc.
 
This podcast was recorded on 14 November 2022.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4261272-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.

All into Account: Pandemic savings cushion downshifting as cost of living rises

In this episode, we take a closer look at the health of the US consumer and household savings and cash balances. We highlight the risk that US households are reaching an inflection point as consumer confidence is on the decline, while year-ahead inflation remains stubbornly high at 7%. Although US household savings are likely to remain positive through the end of next year, our US economists see that the $2.1trn of excess savings relative to the pre-pandemic trend could be used up by the second half of next year. Excess savings supported US discretionary consumer spending and the JPMorgan Chase Institute finds that elevated cash balances during COVID have provided a cushion for spending and that for all income quartiles, real incomes are higher in 2022 than in 2019. More than two-thirds of respondents in our US equity retail cost of living survey expect to see their monthly core cost of living to rise by at least 10% in the coming months relative to costs of living at the start of the year.
 
Joyce Chang, Chair of Global Research
Chris Wheat, President of the JPMorgan Chase Institute
Daniel Silver, Senior US Economist
Matthew Boss, Head of J.P. Morgan’s Retail Equity Research

All into Account: Key takeaways from J.P. Morgan’s investor seminar hosted during IMF/World Bank Fall meetings

In this episode of All into Account, we discuss the key takeaways from the investor seminar that we hosted at the fall IMF/World Bank meetings, an investor seminar that we have been running for more than three decades. Policymakers sent a clear message that they see further pain still to come as central banks prioritize price stability over other objectives. The conference was also noteworthy for the discussion of the risks posed by financial tightening, which are in many ways trumping economic fundamentals. EM debt restructuring was discussed as a global concern but not a systemic one.  Please tune in to hear our other key takeaways.
 
Speakers
Joyce Chang, Chair of Global Research
Jahangir Aziz, Head of EM Economics Research
Jonny Goulden, Head of EM Local Markets and Sovereign Debt Strategy
Luis Oganes, Head of Global Macro Research
Jan Loeys, Head of Long-term Strategy
 
This podcast was recorded on November 2, 2022.
This communication is provided for information purposes only. Institutional clients please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.
 

Equity Strategy: November Chartbook - Equities draw support from likely peaking yields, China reopening, as well as still depressed sentiment/positioning

Speaker: Mislav Matejka, Head of Global Equity Strategy.
We believe that equities will be supported by what is still extremely bearish investor sentiment and very light positioning, as well as improving seasonals at this time of the year. Fundamentally, we think that bond yields are likely in the process of peaking. The disinflation phase has already begun, in our view, even as elevated CPI prints continue, and as bond yields keep oscillating around multi-year highs. Inflation remains a lagging indicator of growth, corporate intentions to raise prices have rolled over, as are now peaking intentions to raise wages. Inventories are building, and that should lead to discounting. Out of the four stages of inflation that we see, commodities, goods, services and finally wages, in our view we are currently moving from second to third in terms of stabilization. While the central banks keep tightening at the short end, the long end could begin pricing in an increasing chance of overdoing it, i.e. of a policy misstep. Further, levels of yields should be capped by the weaker activity from here. If that gains traction, it would go a long way in supporting overall equity market multiple. Second, we believe that China offers a potentially positive catalyst in terms of reopening. China sentiment is at rock bottom and any improvement on this front would be notable. Regionally, we stay of the view that UK and Eurozone are not the easy shorts vs the US as most would believe: Eurozone has never traded this cheap vs the US. UK stays our top DM pick. Value was our key OW for the last two years, and we stay positive on Value parts of the market, but a peak in yields suggests Growth style could also stabilize from here. Pure Defensives look the most expensive.
 
This podcast was recorded on 07 November 2022.
This communication is provided for information purposes only. Institutional clients can view the related report at www.jpmm.com/research/content/GPS-4254314-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.
 
 

All into Account: ‘China Equities: Rallying on reopening outlook’ with Mixo Das, Asia Equity and Quant Strategist

Mixo gives us an update on Asian stocks, and in particular Chinese stocks, which have rallied on a rumor that the reopening outlook has improved.
 
Speakers:
Thomas Salopek
Mixo Das
 
This podcast was recorded on 31 October 2022.
This communication is provided for information purposes only. Institutional clients can view the related report at:
 https://www.jpmm.com/research/content/GPS4229125-0
https://www.jpmm.com/research/content/GPS4246500-0
For more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.

Equity Strategy: Disinflationary phase to take hold - reiterate that bond yields are likely in the process of peaking out

Speaker: Mislav Matejka, Head of Global Equity Strategy.
 
In the past few weeks we have argued that bond yields have likely started the process of peaking. We believe that the disinflation phase has already begun, and that inflation prints, both the headline and core, will be meaningfully lower in 3-6 months’ time. Stylized, we see four stages to inflationary pressures: first the surge in commodity prices, then the spike in goods, followed by services prices, and finally the wages growth. Commodity prices have fallen back significantly over the summer, both metals, softs as well as energy, to be lower by 20-40%. The European natural gas price has almost fully reversed the summer gains, down 65% from the August highs – we have been calling that natural gas prices are set to fall back due to full storages, and that outages during winter are unlikely. At present it is goods prices inflation that is rolling over. Already the corporate pricing power indicator has come off nicely. Even though services prices are more sticky, we suspect that they too could be rolling over in the next months, which might leave wages growth without a catalyst to keep accelerating. Notably, corporate intentions to raise wages also appear to be peaking, and they lead wage growth. Separately, the COVID-driven dislocations continue easing, as seen in a big improvement in suppliers’ delivery times, bottlenecks in ports having fully cleared and the global freight/container rates that have reversed their spikes. Finally, as economic activity has weakened closer to contraction territory, bond yields are likely to be capped by subdued levels of growth from here. If the view of bond yields peaking gains traction, this would go a long way in helping the equity market to stabilize, with valuation multiples that would then appear more credible. In terms of market leadership, while for the past two years we championed the Value style, potentially peaking bond yields call for a tactical bottoming out in Growth style. We look for a rebound in Growth names such as ASML, ADYEN and SAP, and globally for parts of Tech to trade better, especially now that some of their earnings disappointments are out in the open.
 
This podcast was recorded on 31 October 2022.
This communication is provided for information purposes only. Institutional clients can view the related report at www.jpmm.com/research/content/GPS-4245929-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.

All into Account: ‘EM Credit: Upgrading CEMBI to neutral’ with Yang-Myung Hong, Head of EM Corporate Strategy

YM joins us to discuss why he’s become incrementally more bullish on EM credit, with spreads at wides and issuance at half what it was in 2021.
Speakers:
Thomas Salopek, Global Cross Asset Strategy
Yang-Myung Hong, Head of EM Corporate Strategy
 
This podcast was recorded on October 25, 2022.
This communication is provided for information purposes only. Institutional clients can view the related reports at
 https://www.jpmm.com/research/content/GPS4240524-0 https://www.jpmm.com/research/content/GPS4239112-0
For more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved

All into Account: ‘US Inflation downshift is on its way’ with Phoebe White, Head of US Inflation Strategy

Phoebe joins us to share her views on breakevens and real yields.
Speakers: Thomas Salopek, Global Cross Asset Strategy Phoebe White, Head of US Inflation Strategy
This podcast was recorded on October 19, 2022.
This communication is provided for information purposes only. Institutional clients can view the related reports at
https://www.jpmm.com/research/content/GPS4221745-0
https://www.jpmm.com/research/content/GPS4232564-0
For more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved