All Aboard the Manilla Express

Nick Ferres Vantage Point Articles

The Philippines has long been one of the best macro or secular growth stories in the region. Sustained reforms and prudent macroeconomic policies have supported strong GDP growth and macroeconomic stability. At the same time they have helped to contain external and macro-financial vulnerabilities. While socioeconomic challenges remain, poverty and inequality have declined. The ease of doing business also still …

Fed Promises more Powerful than Actions

Nick Ferres Vantage Point Articles

In recent notes we have focussed on the central role of the dollar in global liquidity, cross border capital flows and relative returns between US and non-US assets. A range of factors drive the competitiveness of a currency. In the medium term, a reliable measure and cross check for the fundamental (or real effective) value of a currency is whether …

Mind the Gap

Nick Ferres Vantage Point Articles

With “The Economist” and “Time Magazine” highlighting the yawning gap between the economic data and equity prices, it suggests that the anomaly has become widely appreciated. While the recent economic data have been as bad as anything in the past 100 years, two year ahead earnings expectations have fallen substantially less than the decline in 2008/9. Moreover, investors are willing …

The Emerging Laggard: Part II (An EM Currency Overview)

Nick Ferres Vantage Point Articles

A few weeks ago we noted that the rebound in emerging market currencies has been very modest relative to the “V-Shaped” recovery priced into US equities. That is true on both a spot currency basis and in terms of the risk premia or carry relative to developed market sovereign yields or equity volatility (chart 1). The JP Morgan Emerging Market …

The Battle Between Light and Dark

Nick Ferres Vantage Point Articles

Over the past month there has been an epic battle between the light (monetary and fiscal stimulus) and dark side (economic and earnings weakness) of the force. Currently, the light side of the force is winning. The ever evolving scope and duration of the Federal Reserve’s bond buying program is probably a key reason why the Fed’s April 9 package …

What the Fed Can’t Print

Nick Ferres Vantage Point Articles

It was another extraordinary day in markets. While the oil market stress that impacted the May WTI crude contract was well appreciated, it was still remarkable that the price of the benchmark contract traded at a negative value on Monday. Of course, the key point is that the real price of oil includes the cost of storage and transportation. If …

Depth versus Duration

Nick Ferres Vantage Point Articles

It is an obvious, but often overlooked observation that markets ultimately discount events before they become evident in fundamental news flow. In the recent episode what has been tricky for investors is that the anticipated economic and earnings revision trajectory has fallen so rapidly that it produced a swift decline in equity prices in advance of the macro news flow. …

Productivity & Creative Destruction

Nick Ferres Vantage Point Articles

As we noted on Good Friday, in most historical episodes markets rarely make definitive lows this early in a recession. A multi-month period of contraction in growth and earnings tends to exacerbate known stress points and contributes to new ones that eventually lead to further de-leveraging and declines in risk assets. However, the strongest argument against a re-test of the …

The Entire Kitchen

Nick Ferres Vantage Point Articles

Whether the equity and credit markets have already achieved a trough on March 23 will only be obvious with the benefit of hindsight. In real time, investors will, quite rightly, remain concerned about the depth and duration of the recession, the effectiveness of policy stimulus and the magnitude of the second order imbalances and reflexive linkages. There are a few …

Hopium

Nick Ferres Vantage Point Articles

With the benefit of hindsight it appears as though we are still in the “response phase” sweet spot for equities. With an apparent peak in the US and European COVID-19 infection and mortality rates approaching, markets are choosing to emphasise the positive developments. In particular, the extreme monetary and fiscal policy response with the promise of even more driving the …