China

In the near term, favor oil and oil producers outside the Gulf Arab states. Over a 12-month horizon, favor US and North American equities, defensive sectors over cyclicals, and safe-assets. Within cyclicals, stick to energy and defense.

In the short run, global risk assets are vulnerable due to rising oil prices and bond yields. Cyclically, a global economic downturn will weigh on global risk assets.

EUR/USD collapsed in the wake of last week’s hotter-than-expected US CPI report. Is this pessimism warranted and will the euro’s trading range that has prevailed since 2023 breakdown?

Copper markets are fast approaching a price breakout, as Chinese smelters scramble to find ore to meet increasing refined-copper demand in the wake of a global manufacturing rebound. We are holding fast to our expectation of $4.50/lb (COMEX) this year. We remain long the XME ETF to retain exposure to copper miners and refiners, and the COMT ETF to retain exposure to commodity flat price and the copper backwardation we expect.

Due to funding constraints, China’s infrastructure investment nominal growth rate will likely slow from 9% in 2023 to about 6% this year. The new issuance of Special Treasury Bonds will prevent a contraction in the country’s infrastructure spending, but it will not lead to an acceleration. Stay cautious in China’s infrastructure plays in general and steel and machinery stocks in particular.

Our Portfolio Allocation Summary for April 2024.

The global economy is wobbling precariously between slowing growth and reaccelerating inflation. This is unlikely to end well. Stay cautious, and hedge against both recession and inflation.