Rise and shine everyone. Happy Monday!

It’s quiet Monday in the Asian markets. China’s latest Yuan fixing is helping buoy the currency here after seeing a decline on Friday. The Nikkei took a breather today after gaining 5.5% last week. A second round of wage negotiations from the Rengo Union in Japan is showing lower wage growth at 5.25% vs 5.28% in 1st round.

More news from China on plans to block Intel, AMD and Microsoft from Government use. As of 2023, China provided 27% of Intel's Revenue, 15% of AMD's Revenue and ~1.5% of Microsoft's Revenue. We’re seeing semi’s trade lower this morning.

US Equity Futures are trading lower this morning in the pre-market. We had quite an ugly close on the SPX on Friday and we’re seeing some continuation of that. Also fun times - Fed speakers are back and Bostic is trying to control some of the dovish narrative by saying that he sees one rate cut for 2024.

We’re heading into the month-end this week and according to Goldman Sachs, the pension rebalancing is noteworthy with -$35b of equities for sale. Remember, many don’t wait until the exact month-end for this, and given the news is out there, we may see this pressure during the week.

Yields are higher across the curve, with Gold and Oil trading higher. Bitcoin and the US Dollar are flat.

In other news, Morgan Stanley’s Equity team is finally catching up to the trades we’ve been talking about for the last couple of months - industrials, energy and materials. The reflation trade is on, and we remain partial to these sectors.

Chart of the Day

A great chart from Goldman Sachs shows that dominant stocks are apparently not as expensive today as they were in previous bubbles. While the US is no match for Japan’s Financial Bubble in 1989, the Tech Bubble saw average forward P/Es of 52x, while the Nifty50 saw 34.3x. Compare that to the Mag 7 at 25x and it doesn’t seem so expensive at all.

However, what we should note here is that if earnings start to normalize for these companies, we’re likely to see some of that pricing fall. Expectations are quite high for these companies and while they have mostly delivered thus far, caution is warranted. This is exactly what happened during the Dot Com bubbly in the 2000s when the companies could not live up to their forward earnings estimates.

Other Stories

• US House passes $1.2T govt funding package; Senate expected to vote later today

• US President Joe Biden and Japanese Prime Minister Fumio Kishida are set to announce plans to restructure the US military command in Japan to strengthen operational planning and exercises between the two nations. The move is aimed at countering China's growing threat, which requires their militaries to cooperate and plan

  more seamlessly, especially in a crisis like a Taiwan conflict.

• Germany’s IFO business climate shows the highest reading since June 2023 at 87.8 vs. 85.9 estimate. With the data bottoming in Germany, and starting to see improvements here, we’re keen on looking at Germany for a swing long for this recovery cycle.

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)