Wealth Management Chief Investment Office

13 January 2023

Weekly Market View

Are we
there yet?
 Risk markets have cheered rising
expectations of a growth acceleration in
China and signs of a slowdown in US
growth and inflation, hoping for an early
pause in Fed rate hikes. We believe they
are half right – there is room for further
rise in China and Asia assets but beware
of chasing the US equity rally until the Fed
indicates it will cut rates.

 Still-bearish investor positioning on US

equities (bearish US equities remains a
crowded trade for now) implies they could
go higher in the near-term, especially after
data showed further cooling of inflation
and wages.

 However, the rally is likely to falter as

the US is likely at the doorstep of a
recession, while the Fed remains hawkish,
What are your expectations
given the still-hot job market. In this report,
from the upcoming earnings
we discuss various tactical opportunities in season?
this environment, including fading the rally
in equities, adding to income assets and
Asian exposure and positioning for a USD
bounce. Are you still bullish on the USD
in the near term?

Do you see further upside in

gold?

Important disclosures can be found in the Disclosures Appendix.

Standard Chartered Bank
Wealth Management Chief Investment Office | 13 January 2023

Charts of the week: US earnings risk vs China mobility rebound

We expect US earnings estimates to fall as recession looms; China’s mobility is rebounding, reviving economic activity
S&P500 index, 12-month forward earnings estimate China metro daily passenger volumes (Index: 100 = 1 Jul 2022)
4,900 260 150

average, 100 = 1-Jul-22)

Metro daily passenger
volume (7-day moving
105.9

12m fwd EPS (USD)

4,600 229.0 240 103.7
100 100.5
4,300 220
Index

3,983 86.7
4,000 200 72.5
50
3,700 180
0
3,400 160
Jul-22 Sep-22 Nov-22 Jan-23
Jan-21 Sep-21 May-22 Jan-23
Beijing Shanghai Guangzhou
S&P500 12m fwd EPS (RHS)
Shenzhen Chengdu
Source: FactSet, Bloomberg, Standard Chartered

Editorial
Are we there yet? According to Refinitiv estimates for Q4 22, S&P500 companies
are expected to report the first y/y contraction in earnings since
Risk markets have cheered rising expectations of a growth
the peak of the pandemic. Ex-energy, S&P500 earnings are
acceleration in China and signs of a slowdown in US growth
estimated to have contracted for the third straight quarter. The
and inflation, hoping for an early pause in Fed rate hikes. We
energy sector, which has been propping up earnings in 2022,
believe they are half right – there is room for further rise in China
is expected to report the second straight q/q decline. Although
and Asia assets but beware of chasing the US equity rally until
the consensus has been cutting forward earnings estimates,
the Fed indicates it will cut rates. Still-bearish investor
these have significant room to fall further if a recession hits.
positioning on US equities (bearish US equities remains a
crowded trade for now) implies they could go higher in the near- Against this backdrop, we believe the growth and earnings
term, especially after data showed further cooling of inflation outlook for China and Asia will continue to improve. COVID
and wages. However, the rally is likely to falter as the US is infections in Mainland China appear to have peaked in major
likely at the doorstep of a recession, with the last leg supporting cities, with infections now moving inland. As a result, mobility
the US economy, its services sector, showing signs of buckling, indicators are rebounding strongly in these cities. As mobility
while the Fed remains hawkish, given the still-hot job market. improves, we expect normalisation of activity to unleash a
strong pick up in domestic consumption this year, more than
US services sector business confidence (ISM Services PMI) in
making up for a likely slump in exports. Although monetary and
December surprisingly plunged to just below 50 for the first time
fiscal policy is likely to ease further, investment is likely to lag
since the depth of the pandemic. Except for the post-pandemic
due to challenges faced by local governments in raising funds
plunge, the December services PMI was the weakest since the
from land sales. Thus, for the first time in the modern era, a
Global Financial Crisis. Forward-looking new orders sub-
China recovery is likely to be driven by domestic consumption.
indices have started contracting, following similar contraction
seen in US manufacturing sector activity. While a slowdown in Investment implications: The above outlook calls for: a)
US average hourly earnings have also raised hopes of a Fed Fading the US equity rally. Those seeking to add exposure to
pause, we believe they are premature, given still-sturdy job US risk assets could consider less-volatile US High Yield bonds
creation and renewed decline in jobless claims. or alternative assets; b) Adding exposure to China equities,
especially in consumer discretionary and communication
Slowing wage growth and contractionary PMIs could, of course,
services sectors; c.) Adding exposure to income assets and
lead the Fed to slow the pace of hikes to 25bps at the 31 Jan-
predominantly investment grade Asia USD bonds, which still
01 Feb meeting, but it will need to see a steady decline in the
offer a sizable discount to similarly-rated Developed Market
core inflation to below 0.2% m/m for a few months (to bring
corporate bonds and d) Positioning for a likely USD bounce in
annual inflation towards the Fed’s 2% target) and a consistent
the near-term. Next week’s BoJ meeting (18 Jan) is likely to see
fall in job openings and a steady rise in jobless claims (to lower
it dampen calls for abandoning its yield curve control policy.
wage growth) before it pauses. Core inflation slowed to 5.7%
However, we would refrain from adding JPY loans as we see it
y/y in Dec but, on a monthly basis, it accelerated to 0.3% m/m.
strengthening this year as the USD weakens further and the
US corporate earnings, which have provided partial support to BoJ likely tightens policy after Governor Kuroda departs in April.
US equities last year, could be the other shoe to drop.
— Rajat Bhattacharya

Important disclosures can be found in the Disclosures Appendix. 2

Standard Chartered Bank
Wealth Management Chief Investment Office | 13 January 2023

The weekly macro balance sheet

Our weekly net assessment: On balance, we see the past week’s data US services sector business confidence plunged
and policy as marginally positive for risk assets in the near term. in Dec, but a still-strong job market is likely to
(+) factors: China policy support; strong US jobs report, slowing inflation keep the Fed hiking rates, albeit at a slower pace
(-) factors: Contractionary US ISM services, slower China money growth US ISM Services PMI, US non-farm payrolls
1,900 80
Positive for risk assets Negative for risk assets

Net monthly change

1,600 70
1,300
• US job creation higher than • US ISM services PMI saw 60

Index
1,000

(000s)
expected at 223,000, with biggest drop outside of a 50
700 49.6
jobless rate falling to 3.5%; recession since 1997, 400 40

average hourly earnings falling to contraction (49.6) 100 30

-200 20
below expectations • US jobless claims fell

Nov-20

Nov-22
Nov-21
Sep-20

Sep-21

Sep-22
Mar-21

Mar-22
Jul-20

Jul-21

Jul-22
May-21

May-22
Jan-21

Jan-22
• US CPI continued to slow further; small business
• Euro area consumer optimism fell more than
Nonfarm payrolls ISM Services PMI (RHS)
expected
Macro data

inflation (9.2%) softer than

Source: Bloomberg; Standard Chartered
expected, but core inflation • China M2 money supply
accelerated to 5.2% growth decelerated more
• Euro area retail sales grew than expected
US and Euro area consumer inflation is slowing,
more than expected • German factory orders fell but core inflation remains significantly above Fed,
• Euro area Sentix Investor more than expected ECB targets
Confidence recovered more • China producer prices fell US and Euro area headline and core inflation
than expected more than expected

Our assessment: Neutral – Slowing inflation, wage growth

despite strong US job creation vs US ISM services contraction

• Mainland China authorities • Fed officials called for more

plan to relax their ‘three red rate hikes amid concerns
lines’ policy for the property about easing financial
developments

sector to boost confidence conditions too early

• China signalled an end to • ECB governing council
Policy

the two-year tightening of members gave hawkish

Source: Bloomberg, Standard Chartered
regulations against the commentary
internet sector

Our assessment: Neutral – Supportive China policies vs China’s money supply growth and total loans fell
hawkish Fed, ECB in December; we expect a recovery this year amid
a boost to fiscal and credit stimulus
• US President Biden asked • China suspended short-
China’s M2 money supply growth, total social
Yellen to stay on as term visas for South Korean financing
Treasury Secretary amid and Japan citizens in 14 5,000
CNY bn (3-month moving

looming battle in Congress retaliation for COVID-19-

to raise the debt ceiling related travel restrictions 4,000
12
developments

11.8
average)

• US Republican candidate • Media reports said China 3,000

y/y (%)

10
Other

McCarthy elected as the reportedly took ‘golden 2,000

House speaker after 15 shares’ in Alibaba and 8 1,404 1,000
rounds of voting Tencent, giving the
• China representative to government more control 6 0
Dec-17 Dec-19 Dec-21
Australia claimed a
turnaround in relations Money supply M2 Total social financing (RHS)

Source: Bloomberg, Standard Chartered

Our assessment: Positive – US political leadership stability

Important disclosures can be found in the Disclosures Appendix. 3

Standard Chartered Bank
Wealth Management Chief Investment Office | 13 January 2023

Top client questions

What are your expectations from the upcoming US S&P 500 Q4 FY’22 earnings are expected to fall by
earnings season? 2.2% y/y, the first negative earnings growth rate
since Q3 2020
S&P500 Q4 FY22 earnings are expected to fall 2.2% y/y, according
Expected US earnings growth in Q4 22
Refinitiv estimates. This compares with expectations of a 5.8% rise
at the start of October 2022. This will mark the first earnings decline S&P500 -2.2%
since Q3 2020, while revenue growth will likely have been the lowest Energy 64.7%
since Q4 2020. A cocktail of inflation and slowing growth has led to Industrials 42.7%
companies lowering their guidance over the last few months. Real estate 6.9%

Q4 2022 earnings
Utilities 3.4%
Only four out of eleven S&P500 index sectors are expected to show
Consumer staples -2.7%
positive earnings growth, led by the energy sector. However, even
Healthcare -6.4%
for energy, the growth rate has been slowing.
Financials -8.7%
Therefore, we continue to take a defensive stance in US markets, Technology -8.7%
with consumer staples and healthcare among our preferred sectors. Consumer discretionary -15.1%
Historically, they have shown the least volatility in their earnings, Communication services -21.4%
even during recessions. Materials -22.4%
In terms of technicals, the S&P500 index has been staging a mild -60%-30% 0% 30% 60% 90%
rebound. However, the 4,100 level has proven to be a strong level of y/y (%)
resistance, followed by 4,300. Thus, we maintain our neutral view on Source: Refinitiv, Standard Chartered
US equities and hold a relative preference for Asia ex-Japan, and
Chinese equities in particular, as policies are likely to remain
supportive and expansionary.
— Daniel Lam, CFA, Head, Equity Strategy

Are you still bullish on the USD in the near term?

We expect a near-term bounce in the USD as the
Over the past few weeks, our near-term expectation of a temporary Fed continues to tighten
rebound in the USD index (DXY) has been thwarted by a USD index (DXY)
combination of a warm winter in Europe (which has led to a stronger
115
EUR, the biggest component of the DXY) as well as a decline in US
110 108.4
government bond yields, which has lowered the USD’s interest rate 106.3
105
differential advantage. 105.8
DXY

100 103.1
However, we continue to see a significant risk of a near-term bounce 95
in the USD over the next month owing to the following factors:
90
1. While technicals are not yet at extremely oversold levels, the 85
USD has declined nearly 9% since its recent peak in late 2022. Jan-20 Feb-21 Mar-22 Apr-23
History suggests markets or currencies rarely witness such large DXY 200-DMA

moves without being followed by a period of consolidation. 100-DMA 50-DMA

Source: Bloomberg, Standard Chartered
2. Over the next 1-3 months, we expect US government bond yields
to rise towards 4% as we expect another 75bps of Fed rate hikes
in H1 23, which should be supportive for the USD.
3. Finally, China’s rapid reopening could lead to a slower-than-
forecast decline in inflation. This could lead to a market
reassessment of the current expectations of a relatively rapid
Fed policy easing in 2023, which could drive flows into the safe-
haven USD, at least temporarily.
— Abhilash Narayan, Senior Investment Strategist

Important disclosures can be found in the Disclosures Appendix. 4

Standard Chartered Bank
Wealth Management Chief Investment Office | 13 January 2023

Top client questions (cont’d)

Do you see further upside in gold? Gold is likely to consolidate in the near term if it
fails to break above 1,900 amid overbought
Gold has started the year on a strong footing, with its price rising to technicals and narrowing investor diversity
the highest level since early June last year. The 4% year-to-date rally
XAU/USD and resistance levels
can be largely attributed to the following reasons:
1. The USD’s weakness is historically positive for gold. This has
meant the DXY’s fall to its lowest level since June 2022 was
inversely reflected in gold prices.
2. Real (net-of-inflation) yields, which we see as a key driver for
gold prices, fell this year, supporting the relative attractiveness
of gold (which pays no interest).
3. Near-term retail gold purchases rose ahead of the Chinese New
Year, likely boosted by China’s ongoing reopening.
4. Central banks buying is likely to remain strong. According to the
Source: Bloomberg, Standard Chartered
World Gold Council, central banks bought almost 400 tons in Q3
2022, a record high quarterly total, and more recent data showed
they added a further 85 tonnes in October and November. It is
likely that this trend will continue into 2023.
Having said that, we believe a consolidation could be imminent in
the short term. We continue to see real yields as a headwind given
the risk of a nominal rebound in US government bonds yields. From
a technical standpoint, a stretched RSI (reflecting overbought
conditions) and narrowing investor diversity also point to a
consolidation. USD 1,900/oz will likely be a psychological resistance
level, followed by 1,950, the upper bound of the trend channel since
2020.
— Zhong Liang Han, CFA, Investment Strategist

Important disclosures can be found in the Disclosures Appendix. 5

Standard Chartered Bank
Wealth Management Chief Investment Office | 13 January 2023

Market performance summary *

Sources: MSCI, JP Morgan, Barclays Capital, Citigroup, Dow Jones, HFRX, FTSE, Bloomberg, Standard Chartered
*Performance in USD terms unless otherwise stated, 2023 YTD performance from 31 December 2022 to 12 January 2023; 1-week period: 05
January 2022 to 12 January 2023

Important disclosures can be found in the Disclosures Appendix. 6

Standard Chartered Bank
Wealth Management Chief Investment Office | 13 January 2023

Our 12-month asset class views at a glance Economic and market calendar
Asset class Event Next week Period Expected Prior
▼

MON
Equities Preferred Sectors
Euro area ◆ US Energy ▲
◆ ▲
CH Industrial Production y/y Dec 0.3% 2.2%
US US Staples
CH Retail Sales y/y Dec -8.0% -5.9%
UK ◆ US Healthcare ▲ CH
Fixed Assets Ex Rural
Dec 5.0% 5.3%
Asia ex-Japan ▲ Europe Energy ▲ YTD y/y

TUE
CH GDP y/y 4Q 1.7% 3.9%
Japan ▼ Europe Financials ▲ ILO Unemployment
UK Nov – 3.7%
Rate 3Mths
Other EM ◆ China Comm.
Services
▲ EC
ZEW Survey
Jan – -23.6
Expectations
China Discretionary ▲ US Empire Manufacturing Jan -7.5 -11.2
Bonds (Credit) ▲ JP BoJ Policy Rate Jan
– 10.7%
▲ ◆
UK CPI y/y Dec
Asia USD Alternatives
Retail Sales Ex Auto

WED
US Dec -0.1% -0.2%
Corp DM HY ▼ and Gas
US PPI Final Demand y/y Dec 6.9% 7.4%
Govt EM USD ◆ Gold ◆ Industrial Production
US Dec 0.0% -0.2%
Corp DM IG ◆ m/m
THU

US Housing Starts Dec 1350k 1427k

Bonds (Govt) ▲ Retail Sales Ex Auto
SAT
FRI/

UK Dec – -5.9%
Govt EM Local ◆ Fuel y/y

Govt DM IG ◆ Source: Bloomberg, Standard Chartered

Prior data are for the preceding period unless otherwise indicated. Data
Source: Standard Chartered Global Investment Committee are % change on previous period unless otherwise indicated
P - preliminary data, F - final data, sa - seasonally adjusted, y/y - year-
Legend: ▲ Most preferred | ▼ Less preferred | ◆ Core holding on-year, m/m - month-on-month

The S&P500 index faces resistance at 4,014 Investor diversity has deteriorated in the past month
Technical indicators for key markets as of 12 January close Our proprietary market diversity indicators as of 12 January
1st 1st 1-month Fractal
Index Spot support resistance Level 1 Diversity trend dimension
S&P 500 3,983 3,922 4,014 Global Bonds ◐  1.32
Global Equities ◐  1.35
◐
STOXX 50 4,127 4,054 4,163
Gold  1.31
FTSE 100 7,794 7,728 7,827 Equity

Nikkei 225 26,143 25,928 26,404

MSCI US ◐  1.44
MSCI Europe ○  1.20
Shanghai Comp 3,180 3,165 3,187 MSCI AC AXJ ○  1.19
Hang Seng 21,593 21,192 21,795 Fixed Income
DM Corp Bond ◐  1.31
MSCI Asia ex-Japan 659 648 665
DM High Yield ◐  1.31
MSCI EM 1,018 999 1,028 EM USD ◐  1.34
EM Local ○  1.20
WTI (Spot) 83.7 80.2 85.6
Asia USD ◐ → 1.40
Gold 1,898 1,877 1,909 Currencies

UST 10y Yield 3.47 3.40 3.58

EUR/USD ◐  1.27
Source: Bloomberg, Standard Chartered; Fractal dimensions below
Source: Bloomberg, Standard Chartered 1.25 indicate extremely low market diversity/high risk of a reversal
Note: These short-term technical levels are based on models and may
differ from a more qualitative analysis provided in other pages Legend: ● High | ◐ Low to mid | ○ Critically low

Important disclosures can be found in the Disclosures Appendix. 7

Standard Chartered Bank
Wealth Management Chief Investment Office | 13 January 2023

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Standard Chartered Bank
Wealth Management Chief Investment Office | 13 January 2023

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Standard Chartered Bank
Wealth Management Chief Investment Office | 13 January 2023

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Monetary Authority of Singapore. Taiwan: Standard Chartered Bank (“SCB”) or Standard Chartered Bank (Taiwan) Limited

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Standard Chartered Bank
Wealth Management Chief Investment Office | 13 January 2023

(“SCB (Taiwan)”) may be involved in the financial instruments contained herein or other related financial instruments. The author of
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author and the above-mentioned employees of SCB or SCB (Taiwan) may have taken related actions in respect of the information
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