Investor’s Insights 05/06/2023–11/06/2023

6 min readJun 18, 2023

This newsletter is intended for educational purposes only. The author is not liable for any potential losses, realised or unrealised, of the reader should the reader decide to invest, speculate, hedge or engage in any financial activities based upon the information here. The reader shall do his or her own research and bear the risks should he or she intend to invest.

Hello to all my friends, followers and readers. I am excited to announce that I will be embarking on a new global macro newsletter which I intend to issue weekly. As an aspiring buy-side analyst, I hope to better organise my thoughts and also to cross check to see if my analysis is correct. At the same time, I hope my newsletter will bring you better insights and knowledge. Feel free to reach out to me if you have any comment or feedback!

Geographical breakdown

Today, let us focus on the first issue of Investor’s Insights, where we will look at possible actions of the Fed, debt ceiling resolution in the USA, China’s reopening, as well as the impacts of the Turkish elections.

USA

Since May 2023, the USA has been in the headlines due to the debt ceiling crisis, whereby the total debt issued was creeping towards the US$31.4 trillion debt ceiling. Should the USA hit the debt ceiling, new treasury securities would no longer be able issued and it is likely that the USA will default on treasury repayments. In this event, unthinkable consequences will occur, confidence will plunge, bringing the world economy into recession. The USD is more likely than not to appreciate in the short run due to fixed supply of the USD while demand increases as firms require USD to repay their liabilities because the USD is the world reserve currency and base currency for foreign exchange. In the longer term, everyone will lose faith in the USD, and perhaps we will go back to the barter economy, embrace cryptocurrency or perhaps return to using gold as currency.

Luckily for us, the debt ceiling crisis has a temporary solution — it has been suspended until 2025. Until then, we should be relatively safe and continue to use fiat currency as the primary method of payment. However, when 2025 comes, what happens then? Can the debt ceiling be raised/suspended forever? What are the impacts of USA’s sustained fiscal imprudence? These are questions I do not know the answer to, and would like to conduct more research in the future.

Now let us turn to another topic that is important: the Fed’s action in the coming months. The market consensus is that the Fed will pause rate hikes in June 2023. However, some within the Fed are still concerned about the high inflation, which has decreased over the last year, but is still higher than normal.

“I do not support stopping rate hikes unless we get clear evidence that inflation is moving down.” ~ Fed Governor Christopher Waller, May 24

Regardless, it is more likely than not that in this month and perhaps the next, both parties would reach a consensus of at least ‘skipping’ rate hikes, meaning that they do not hike rates in June, but may hike rates in July. That said, it is still important to keep an eye on inflation (CPI will be released on June 13) and the next FOMC meeting. Should actual inflation be higher than forecasted inflation, another rate hike this month is still a very real possibility.

China

China has seen stronger than expected GDP growth recently and this might signal optimism amid the reopening of the Chinese economy as the CCP pivots from ‘Zero Covid’ to ‘Zero Restriction’.

Actual GDP growth exceeded forecasted GDP growth and it is expected to perform even better yet. However, upon further research, Chinese exports have actually been decreasing recently. This is of significant importance because China is an open economy and largely reliant on exports of manufactured goods to sustain its economy.

Chinese exports have a general decreasing trend over the last 1 year. So what exactly is the source of China’s better than expected GDP performance?

The service sector has taken up a larger proportion of China’s GDP while the manufacturing sector has shrunk. It can then be inferred that the recent outperformance of China’s GDP could be due to internal consumption of services due to the reopening and not the export of manufactured goods which has driven China’s growth for the past decade.

This new source of growth of China’s GDP remains untested and it is uncertain if internal consumption is sustainable for China. Continued monitoring of the Chinese market is necessary.

Turkey

For the past several months, the TRY has been depreciating against USD as Turkish President Erdogan won the elections. Using unconventional monetary policy such as increasing money supply and cutting interest rates while the whole world (maybe to a lesser extent, Japan) was hiking rates has caused confidence in the TRY to falter.

Since the beginning of the year, TRY has dropped from 0.053USD to 0.0427USD.

“Turkey has no other choice than to return to a rational ground,”
~ Mehmet Simsek, new finance minister of Turkey

In a surprising turn of events, President Erdogan has appointed new people into positions of power. Mehmet Simsek, the new finance minister of Turkey seems to want to reverse the damaging policies to more conventional economic policies. Hafize Gaye Erkan, who has held senior positions at Goldman Sachs and First Republic Bank, has also been appointed to be the new head of Turkey’s Central Bank and is expected to support traditional, rational economic policy.

The recent sharp depreciation in the lira could be attributed to the Central Bank stop supporting the currency by selling foreign reserves and buying lira, causing market forces to kick in. Now, what happens next remain unclear as high volatility is expected to remain. Should the new team actually roll out policies that make economic sense (such as hiking rates), then perhaps the lira will appreciate again as confidence in the currency increase. However, due to the Turkish Central Bank no longer supporting the currency, should the new team fail to deliver their promises, lira could spiral further down.