Macro

• China is not in a 2015 boom/bust period with households under-invested in the stock market.
• It is now time for China to begin fiscal stimulus as discussed at the MOF meeting over the weekend.  Central government will relieve local governments’ hidden debt through debt swaps.
• PBOC and MOF will closely watch interest rates and government yields as they roll out fiscal measures.  CNY levels will also be considered in future policy decisions.

• The Fed’s policy pivot to concentrate on the labour market reflects the priorities of politicians who view full employment as the more important mandate compared to price stability.
• Doubts about the wisdom of the Fed’s aggressive policy rate reduction have increased since the release of the September Employment Situation report. Bond investors have demanded a higher term premium.
• Surveys on household and business optimism are sending worrying signals.  Fed credibility will face communication challenges as long as forward guidance indicates easier policy but economic outlook risks remain balanced.

• Volatility in economic data feeds through to bond market volatility because of the Fed’s increasing focus on data dependency.
• Wobbles in earnings estimate growth at the start of Q3 earnings season is leading to uncertainty in stock prices.
• We believe these sources of volatility will resolve themselves in a benign manner.

• Stock market internals are call for near-term caution but intermediate-term bullishness.
• Election uncertainty, along with cross-currents such as the stronger-than-expected CPI report is creating market volatility.
• But market internals reveal a strong bull trend and a near-oversold condition.

• Heavyweights attended as per previous conferences. Finance Minister (FM) Lan Foan and his three deputies
• Economists’ and market expectations damped down to RMB 1.5 – 2 Trillion in stimulus.
• Some major positive points we believe, but will be a disappointment to some

• Beijing’s latest policy announcements show that it is no longer content with a managed slowdown. They are now committed to more energetic policy support for the economy. 
• Given the slowdown’s entrenched roots, partly due to Beijing’s prior reluctance, we do not think that the current package alone will turn things around. 
• But with Beijing taking the cyclical slump more seriously, further support measures are likely, which, cumulatively, may be sufficient to stabilize short-term economic conditions. 

• Delay in EUDR to lead to renegotiation of premium
• Talks of removal of Ivorian cup lump ban

• China’s economic policy remains focused on investment, with low expectations for a significant stimulus from the Ministry of Finance.
• International reserves are generally increasing across Asia, supporting currency appreciation, except for Indonesia.
• Japan’s recent data shows rising cash earnings but declining real wages and household spending, highlighting concerns in the real economy.

• We were right on the sideway walk eventually of HSI but far underestimate its volatility.
• US S&P is comparably more boring, edging north merely by 0.74% for the week
• Gold retreated a bit in the previous week but is instill a marvelous medium-term choice given the Fed rate cut cycle.

• US inflation has surpassed expectations, along with strong payroll releases, despite a dovish bias. The Reserve Bank of New Zealand has followed the Federal Reserve’s 50bp, Korea has begun cutting rates, and Peru has unexpectedly maintained its rates. Early-easers are reconsidering their strategies.
• The European Central Bank is expected to cut rates next week due to a dis-inflated outlook and disappointing demand. This expectation is shared by the market and consensus, although it is not a certainty.
• UK inflation data is predicted to slow, while the labour market continues to remain tight.

• Green hydrogen / In Depth: Why making green hydrogen is keeping producers in the red
• Swap /: Three things to know about PBOC’s new swap facility to boost stocks
• Monetary /: PBOC and Finance Ministry join forces to add bond trading to monetary policy toolbox

• The Bank of Korea cut its base rate by 25bp to 3.25%, in line with the consensus, citing stabilised inflation and a slowdown in household debt growth.
• Future rate decisions will depend on the domestic demand recovery, which remains sluggish, alongside heightened global economic risks such as geopolitical tensions and volatility in foreign exchange markets.
• The central bank will continue to weigh the trade-offs between growth and financial stability, with particular attention to household debt and housing market dynamics amid potential further rate cuts.

• Hello everyone, and welcome back to our weekly positioning watch.
• What a week it has been in global macro once again, with Chinese equities collapsing earlier this week after the Chinese stimulus frenzy fizzled out.
• However, we are now starting to hear that Chinese authorities are taking matters seriously, planning a new round of stimulus on the 12th of October.

• Teachers / In Depth: Chinese teachers’ mental health crisis A recent study, which surveyed more than 550,000 teachers from preschools, primary, secondary and higher education institutions, found that between 2000 and 2022, 16.1% of Chinese teachers experienced mental health issues.
• If preschool teachers, who had a far lower rate, are excluded, the figure was 17.8%.
• “While mental health has gained widespread attention globally in recent years, the mental well-being of teachers has not received the focus it deserves,” said the lead researcher of the study Yu Guoliang, a professor at Renmin University of China and director of its Institute of Psychology.

• We remain concerned that fiscal stress will be evident in H1 2025, as rating agencies worry over the deficit/debt and interest rate that is unlikely to improve under either president.  
• This leaves an event risk of a ratings downgrade from one of the major agencies, given that the fiscal picture warrants a lower rating for the U.S. government.  
• However, current good yield levels on U.S. Treasuries, plus lack of alternative major reserve assets argues against a fiscal crisis occurring. 

• An upside CPI inflation surprise has joined upside news on the US labour market. It resisted dis-inflated expectations despite sharp falls in energy prices.
• Core strength was more pronounced and not reliant on shelter price inflation, which it exceeded by the most since Feb-22. Nor does strength reflect residual seasonality.
• Repeating 2022-23’s pattern would mean a softer Q4, helping the Fed to cut again in November and December before more robust numbers in Q1 start urging restraint.

• Rubber Board new and replanting subsidy program starts rolling  
• RRII, IOCL sign MoU to boost research in process oils  
• Rubber Board stalls Kerala Govt move to shut Central Nursery 

• For the week ending 04/Oct, US crude inventories rose by 5.8m barrels, exceeding expectations of a 2m barrel build. However, gasoline and distillate stockpiles fell more than expected.
• US natural gas inventories rose by 82 Bcf for the week ending 04/Oct, higher than analyst expectations of a 73 Bcf buildup. Inventories are 5.1% above the 5-year seasonal average.
• Chevron and Shell experienced target price upgrades, while Schlumberger and Occidental’s target prices were cut. Notably, BNP Paribas downgraded Exxon to Underperform from Neutral.

• FOMC minutes from September 18 generated little response from the markets.
• A substantial majority favored the 50bps easing that was delivered though some would have preferred a 25bps move and a few others indicated they could support such a decision.
• There was only one dissenting voter, Governor Michelle Bowman. Others backing 25bps appear to have been non-voting regional Fed presidents.

• The contribution of high value-added industries, such as biomedicine, to China’s total economic inputs increased in September after reaching a five-month low the previous month, driven by greater capital and technology inputs, a Caixin index showed Wednesday.
• The Caixin BBD New Economy Index (NEI) ticked up 1.1 points from August to 30.9 last month, indicating that new economy industries accounted for 30.9% of China’s overall economic input activities.
• The NEI uses big data to track the size of China’s nascent industries.

• The investment community’s response to the historic rallies in HK and China markets over the last couple of weeks unsurprisingly continues to be pessimistic.
• China’s objective of changing market sentiment is beginning to bear fruit as mainland investors open stock accounts at a record pace.  Household wealth has increased by 20T yuan last month.
• Technical market indicators point to continued high volatility during this leg of the secular bull market.

• Huaqing Petroleum to set up plant worth US$1.39 billion in Hunan
• Linglong commences serial production at its Serbia plant 
• ZC Rubber Group cements network for supply to Nordic countries

• A correction was natural after the fast, strong move up
• Any detailed fiscal stimulus plan will come from the State Council or the MoF
• Capital market reforms moving in the right direction with continued focus on consumption.

• Despite strong jobs data, the yield curve has inverted once again. This inversion is driven by delay in rate cut expectations.
• Encouraging PCE data which showed inflation easing to 2.2% (lowest since 2021 & close to Fed’s target), the likelihood of a cumulative 50 bps cut has steadily risen.
• Soft landing reduces urgency for aggressive rate cuts, giving the Fed more flexibility to monitor the effects of previous rate hikes and to lower rates more gradually.

• Excessively dovish expectations have repriced recently, but 2025 rates require almost another 20bps increase in the US and Euro area to reverse August’s dysfunctional drop.
• Rate alignment across the US, UK, and EA limits FX opportunities. Previous contrarian views on USD strength no longer hold amid narrowing central bank policy differences.
• Equity outlooks remain bullish, supported by monetary easing. Like in 1998, shallower rate cuts would eventually become bearish, but it only requires opportunistic hedging.

• A few hours after the decently strong non-farm payrolls report, Goolsbee of the FOMC commented on inflation undershooting its target, suggesting it will take much more to convince the Fed to change its direction on policy rates.
• On a broader scale, it’s difficult to be overly concerned about a labor market rebound in the US economy right now.
• After some time to reflect on Friday’s labor report, a few thoughts emerge: while the report was solid, there are still lingering questions.

•  A chemical used in tire manufacture has been causing controversy since 2020.  
•  The United States Tire Manufacturers Association (USTMA) is investigating a series of potential alternatives, following new legislation from California that requires any company selling tires in California to either declare that they do not contain 6PPD, or demonstrate that they are seriously seeking alternatives.  
• As of now, no major fines have been imposed on tire manufacturers specifically for 6PPD use, but there is growing regulatory scrutiny, particularly in regions like the Pacific Northwest where environmental harm has been documented.

• US natural gas prices fell by 1.65% for the week ending 04/Oct, ending a streak of five straight weekly gains. The decline was due to expectations of softening demand.  
• Henry Hub Put/Call volume ratio fell to 0.98 (04/Oct) from 1.03 the previous week as put volumes fell by 20.2% WoW, while call volumes declined by 16.7%.
• Put OI increased for contracts expiring in October and November, while call OI rose for expiries in December, January, February, and March.

• WTI futures rose by 9.1% for the week ending 04/Oct, its strongest weekly gain since October 2022. The surge was led by escalating tensions between Israel and Iran.
• WTI options Put/Call volume ratio fell to 0.64 (04/Oct) from 0.76 (27/Sep) as call volume jumped by 120% WoW while put volume grew by 86.6%.
• WTI OI PCR fell to 0.76 for the week ending 04/Oct from 0.77 last week. Call OI rose by 11.4% WoW, while put OI grew by 10.4%.

• Bitcoin /: U.K. court accepts Chinese investor’s lawsuit linked to nearly $4 billion in laundered Bitcoin
• Stabbing /: Police arrest Chinese man suspected of stabbing three 5-year-olds in Switzerland
• Stimulus /In Depth: Stimulus drives China’s biggest stock surge since 2008, but analysts fear it might fizzle

• Although the tech sector in Hong Kong has surged over the last couple of weeks there appears to be minimal short covering in US-listed China tech names.
• The performance of the “Magnificent 5” China tech names has led the rally as we outlined in Hong Kong: The Glass Is Half Full, Time to BUY Beta .
• The combination of of large outstanding short positions and a significant underweight of HK/China in international funds will lead to further upside in the tech sector.

• S&P 500 futures down 33 basis points, showing signs of exhaustion
• US dollar index up 67 basis points, driven by euro reversal
• China’s unexpected outperformance in equities may be linked to US stimulus actions and coordination

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.

• Just a few hours after the release of a much stronger-than-expected jobs report, Goolsbee of the FOMC highlighted the risk of undershooting inflation in the US.
• While Goolsbee is a dovish, soft-leaning member of the committee, it goes to show that you don’t turn around a supertanker like the Fed just because the NFP printed a bit better than expected.
• The Fed has set a direction, and it will take a lot to convince them not to continue cutting interest rates back toward neutral, around 3%.

• Overall, the warning from slow real credit growth on reduced credit supply and demand is the main lesson from the Asia crisis 1997-98.  
• China High FX reserves; low borrowing overseas and dominance of domestic investors in Yuan markets argues against a currency crisis. 
• Asia widespread banking crisis are also unlikely to repeat in China, though we see growing stress among rural banks that in the worst case could be a rural banking crisis.  

• Brent oil futures trading in line with fair value, with bullish bias in options, as volume of bullish calls hit record high
• Ongoing conflict between Israel and Iran raising concerns about further escalation, with recent attacks and strikes indicating potential for heightened tensions
• Global oil inventories are significantly lower than in previous years, potentially impacting market dynamics and prices as demand and inventory levels play a key role

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.

• US economic growth has shown exceptional resilience, with a strong payrolls report and other positive macroeconomic factors
• Higher US yields may put pressure on dollar shorts and lead to a potential capitulation in those positions
• Canadian dollar baskets may outperform in this environment, with higher US yields benefiting the CAD

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• Israel is likely to retaliate against Iran’s recent missile attack, potentially escalating the situation.
• Israel’s aim may be to fundamentally shift the regional balance of power.
• The threat to oil due to this conflict may be overstated.

• Option prices are a valuable tool for studying market trends and risk premium
• Gold’s unique properties make it a valuable asset for portfolio diversification and defense against government chaos
• The oil VIX index, OVX, provides insights into market risk and volatility in the oil market, with potential implications for broader market trends

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.

• The Federal Reserve’s aggressive easing is not in line with the resilient data.
• There is still a high level of underlying wage inflation.
• There are expectations of 25bp cuts at the upcoming ECB, BoE, and Fed meetings, but these cuts are likely to cease early in 2025, mirroring the events of 1998. Excessive easing at the start can lead to economic bubbles.

• NR prices surge over 33% YoY during April-August 2024
• In FY 2024-25 Q1, operating margin of top five tire firms falls ~200 basis points to 14%
• NR prices in downward trend in Oct amid a surge in supply

• The People’s Bank of China reduced its policy rate, lowered reserve requirements, and introduced a new lending facility to support the equity market.
• New fiscal policy measures were announced to help consumers,  but large stimulus programmes invariably incur legacy issues that can subsequently impede the capacity of governments to counter faltering economic activity.
• Improved Chinese equity prices need sustainment by higher corporate profits, courtesy of faster economic growth. Improved labour market conditions are essential for a recovery in consumer confidence and economic activity.

• Change in strategy by the Chinese authorities mean this is more than a trade
• Sentiment, valuations and positioning are still supportive despite the rally
• Overbought conditions in the very short-term and the technical picture is mixed 

• Part of investing is proper risk management and the pricing of risk.
• While war in the Middle East is not our base-case scenario, we believe the odds of an Israeli attack on Iran are higher than the market expects.
• The market is underpricing the risk of war and investors should be aware of this tail risk and position themselves accordingly.

• We are building our in-house proprietary China CPI Prediction Model, based on the paper “Forecasting China’s Consumer Price Index (CPI) Based on Combined ARIMA-LSTM Models”* by Yu Liu.
• This study aims to construct an efficient consumer price index (CPI) forecasting model to provide policymakers, investors, and businesses with more accurate forecasts of future price levels and inflation trends.
• In this study, a combined model that integrates autoregressive integrated moving average (ARIMA) with long short-term memory (LSTM) networks is introduced.

• With China’s slew of stimulus measures released last month, we are confident that copper prices will break 10,000 USD/ton soon. 
• The COMEX spread with LME has now started to build up to over 300 USD/ton, signaling that macro funds are getting bullish on copper.
• We continue to like the equity route to play copper with pure plays like Southern Copper (SCCO US) , Ivanhoe Mines (IVN CN), and Teck Resources (TECK US).

• A slew of policies announced by the Chinese government led to a short squeeze in the iron ore market, with prices moving up 20% from the lows to 108 USD/ton.
• Mill margins inflected into positive territory, and iron ore, after gapping below its band of 95-130 USD/ton for the last 3.5 years, is now back in its normalized range. 
• While the current move was unexpected, we expect the euphoria to last a while as more clarity on the stimulus emerges and ore prices tick up short-term.

• The combination of easier monetary policy by most global central banks and strong price momentum is equity bullish. 
• However, investors should be aware of the risks to the growth outlook.
• Global institutions are underweight risk and they may be forced to play catch-up. But fast money risk appetite is elevated, which makes stock prices vulnerable to short-term setbacks.

• The center of this week market is still the impact of PBOC’s serial interest rate cuts and $800billion fund into the stock market.
• Assuming the LTV ratio to be 0.6 and public-private fund ratio at 1:1, there will be RMB 4 trillion fund released to trade stock. 
• Divide this amount by 0.5 trillion transaction volume, all fund will dry up in about 8 trading days. After that, performance will depend on fundamentals and remnants of the euphoria.

• September’s non-farm payroll is well above consensus with a rise of 254k from 142k in August, above our in house forecast of 159K and the consensus of 150K.
• . Unemployment unexpectedly fell to 4.1% from 4.2% and average hourly earnings were above trend at 0.4% again with upward back revisions.
• This is clearly a strong report, even with a dip in the workweek to 34.2 from 34.3 hours.

• China has shifted sentiment in its stock markets which will translate into a virtuous cycle of increased wealth and consumption.
• China is now focusing on demand side monetary policies after nearly 2 years of supply side policies.
• China’s large household savings pool will now move into the real economy and help the country in its transition to increased domestic consumption as investment evolves into “High Quality Manufacturing”

• Macro backdrop evolving with upcoming US elections and Middle East tensions impacting EM assets
• Mixed bag on macro side with softer inflation in EM, better revisions in US growth but soft manufacturing PMIs
• China as tiebreaker with further policy support, rally in equities, and implications for Fed and commodities prices; geopolitical risks and US election as wild cards to watch

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• Welcome to this liquidity watch analysis, where we will address the current stress in USD funding markets and the potential impact on the Fed’s reaction function.
• Our best guess is that the current situation will serve as a reason for the Fed to alter the liquidity path significantly in the coming months.
• Here is a list of the key details you need to pay attention to.

• Joins hands with Bosch to develop intelligent tire tech for safe driving
• Gets validation from SBTi on zero emission target by 2040
• Gets over 500 approvals for cutting-edge Elect technology

• Powell resisted further cuts of 50bp, contrasting with Bailey’s willingness to take more aggressive action. This was in the context of low EA inflation, which was in line with our predictions, and the realization of significant payroll risk. Policy pricing adjustments continued.
• The focus for the upcoming week is on US inflation and the Fed minutes, along with some secondary monetary policy announcements.
• The most notable consensus is a 50bp cut by the RBNZ. Other key policy decisions are expected from Peru, Korea, Israel, and India.