Macro

• 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
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• 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.

• The USD market will be flooded with liquidity in Q4, accompanied by rate cuts, providing Chinese authorities with a window of opportunity to ease policy.
• However, there is one issue: CNY liquidity is tightening now.
• Welcome to our weekly China Watch, where we examine Chinese assets through the lens of Western investors and markets.

• Hello everyone, and welcome back to our weekly positioning watch.
• The moves from last week continue with China still being super bid going into this week, and the flows that we are seeing into Chinese equity ETFs are becoming almost hilarious now, as everyone and their mother is piling into the China story at current junctures.
• The weekly inflow is at 3.5 bn USD on a weekly basis now, so we’re talking a 5-6 std.

• Israel will counteract Iran,  prompting a further missile attack by Iran.Our bias remains that Israel is to have a buffer zone in southern Lebanon and not fight a prolonged war.   
• This limits the economic fallout globally and on oil prices. The U.S. presidential election will move markets but not until the result after Nov 5.  The bigger issue remain rate cuts.  
• The market is underestimating cumulative BOE easing prospects however, while not discounting the 75bps of BOJ rate hikes we see by mid-2025. 

• Take aways: Risk premium in crude oil compressing due to Israel calling Iran’s game of chicken. Fade the strength in assets connected to the real economy.
• Supply is still the biggest risk in crude oil. Strike risk in the US means Mexico is an opportunity.
• Israel launched ground operations in southern Lebanon overnight, aiming to push Hezbollah away from areas near the border.

• Rising tensions in the Middle East increase focus on geopolitical risks, which are hard to hedge. The UAE’s neutrality has made it a natural safe harbour, and this remains true.
• Dubai property is an investible hedge, with price inflation correlated to the geopolitical risk level because it attracts sticky capital inflows whenever risks crystallise.
• Natural leverage through off-plan payment schedules lowers the capital intensity of this diversifying asset while also presenting families with an attractive political “plan B”.

• EU commission proposes longer phase-in time  
• Some tire makers are delaying EUDR rubber booking  
• EU’s faltering EV market is a concern  

• Introduction to new investment strategy: activism in Japan
• Potential for high returns with unique approach to investing
• Evolution of opportunity in Japan and potential for success due to increasing pro-shareholder culture

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• A monthly review of how the markets and our themes are currently performing
• Analysing what went wrong and what went right in stocks and sectors
• Highlighting positions added or removed from the thematic investment portfolio

• China’s markets may see upward movement, with economic recovery likely in the second half of 2025.
• September PMIs were soft across most of Asia, with Vietnam disrupted by a typhoon.
• Japan and Thailand face weak industrial production, prompting a recommendation to reduce exposure.

• For the week ending 27/Sep, US crude inventories rose by 3.9m barrels, contrasting expectations of a 1.5m barrel drawdown. Gasoline stockpiles also unexpectedly grew.
• US natural gas inventories rose 55 Bcf for the week ending 27/Sep, lower than analyst expectations of a 59 Bcf buildup. Inventories are 5.7% above the 5-year seasonal average.
• Chevron, Shell, Halliburton, and Schlumberger have all experienced target price downgrades, while Exxon Mobil received an upward revision to its target price. Notably, Goldman Sachs downgraded Occidental to Neutral.

• In this insight, we discuss numerous gap trade opportunities involving Korean preferred and common shares in 4Q 2024.
• Among the 27 major pair trades (prefs vs. common shares), 16 of the pref stocks outperformed their common shares counterparts so far this year. 
• The 27 Korean preferred stocks’ average prices increased by 8.3% from end of 2023 to 2 October 2024 (excluding dividends), outperforming their common counterparts which were up on average 5.4%.

• Price surge to continue until 2025
• 13% higher precipitation in Thailand in Jan-Aug 2024 vs 2023

• Political instability in France and Germany hampers Europe’s ability to act, making a second Trump term the most visible “grey rhino” that could force significant change.
• European complacency and fatalism could be shaken by Trump’s aggressive trade policy and executive actions, pressuring Europe to respond to disrupted global alliances.
• Uncertainty surrounds Ukraine aid post-election, with Trump likely to halt it and Harris facing gridlock, potentially forcing a temporary and uneasy end to the conflict.

• Klein (2022)* found that prediction quality varies across economists and rejected the hypothesis of equal predictive ability. It is worth building our proprietary model on monthly changes of nonfarm payroll.
• We follow Bhatia (2020)# and add improvement on our own to arrive at our proprietary nonfarm payroll prediction model. The growth in payrolls is surprisingly stationary.
• Public impressions fall prey to the recency bias that assumes the most recent experience is a signal of the future that is distinct from the past.

• The latest speech given by Fed Chairman Powell to the NABE was not dovish, suggesting the labor market is  where the Fed wants and easing is designed to keep it.
• In the Q+A he went on to see GDP revisions as having reduced downside risk, and suggested the Fed is not in a hurry to cut quickly.
• Powell saw labor market conditions as solid, having cooled from a previously overheated state, and noted that job openings still exceed the number seeking work, something rare prior to 2019.

• Happy Monday, let’s dive into the most critical stuff we are on the look out for this week.
• Morning moves: It seems like physical commodities markets are catching up to the China stimulus story from last week, in tandem with the Hang Seng.
• Over the end of last, Japan’s elections pushed USD/JPY lower, leading investors to sell the Nikkei rather aggressively due to a clear hawkish expected lean from the new PM Ishiba.

• Economic policy in the US and China, the two most important economic partners for emerging Asia,  is turning more supportive of global growth.
• Oil prices are also entering a period of “lower for longer”; Saudi Arabia’s signal of reversing its production cuts will exert downward pressure on oil prices, largely to Asia’s benefit.
• The overall result of these developments is to open up more scope for policy loosening, strengthen export demand and encourage more investments, to emerging Asia’s benefit. 

• Recent policy changes in China have sparked a surge in commodity prices and stock markets
• China’s focus on stimulating the real economy over asset prices sets them apart from Western policies
• Chinese government has implemented measures such as interest rate cuts and lower bank reserve requirements to boost liquidity and investment

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• HK/China stock markets are re-rating quickly sentiment became overly pessimistic.
• A stock market bottom precedes a property market bottom by years.
• China’s markets have languished due to the government’s focus on supply-side solutions.  That focus has now shifted to include demand-side stimulus efforts as the PBOC Put accelerates.

• Our earlier articles state the natures and description of several monetary actions by PBOC last week, highlighting a possibility of stock rallly
• This article on the other hand dicussess the economic benefits of the monetary policies, which are more relevant from the authority’s point of view.
• For stock market still, we believe the RMB 800 billion fund, given a RMB 2-3 trillions daily transaction volume and 60% LTV leverage , has long been dumped into market.

• Stimulus / Cover Story: China’s stimulus bomb sparks optimism, but economy may still struggle
• Asia New Vision Forum /Asia New Vision Forum: China expected to be world’s biggest economy by 2050, Thornton says
• Political /: Ex-local lawmaker becomes latest official punished for his reading material

• Headline EA inflation disappointed consensus expectations by dropping another 0.4pp to 1.77% amid lower energy prices and stagnant industrial goods prices.
• Although the outcome was within 1bps of our forecast, it has been grinding lower in recent weeks. The likely rebound above 2% looks increasingly small and fleeting.
• The expected rebound restrained the ECB, so its diminishment while demand disappoints now makes an October rate cut likely in addition to the December move.

• Core PCE inflation was 2.7%YoY in Aug’24, too high to allow another 50bp cut in Nov’24, despite the fourth consecutive MoM (annualized) gain in core PCE of less than 2%.
• The Jul’23-Feb’24 acceleration in base money (10.2%YoY in Feb’24) contributed crucially to the Jan-Apr’24 spike in core PCE. Slower base money, and steadily accelerating M2, made things better since May’24. 
• Mild, steady acceleration in M2 (i.e., small rate cuts every 6 weeks) should allow core inflation to keep receding. Faster rate cuts are possible once inflation is genuinely at 2%YoY. 

• Everything is about the ongoing rally in Chinese equities at the moment, with China now being the best yielding country in the world in equity space after both the PBoC and the Politburo coming through with stimulus proposals, which has caught all China bears on the wrong side of the trade.
• We learned today that the PBoC is cutting the standing lending facility rates by 20 bps, a move not seen since the pandemic broke out.
• They have normally cut the interest rates in the lending facility by 10 bps at a time, so this is likely a sign that they’re truly willing to do something about the slump in growth / real estate.

• Commodity markets are down despite stimulatory measures from China, with oil prices falling due to increased supply from Libya and OPEC plus alliance
• China’s demand outlook for oil remains steady, with forecasts for oil demand growth unchanged despite stimulus measures
• Base metals, particularly copper, have seen a price increase due to stronger demand impulses from China, with bullish outlook and potential upside risks for the first half of 2025

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• Happy Weekend from Copenhagen! China made a 5-6 standard deviation move, happening just ahead of a significant influx of liquidity in both USD and CNY markets.
• Despite global softness in labor market data trends, this influx is noteworthy, and the Fed is considering rolling out 1-2 liquidity tricks to bolster the outlook.
• Before we head into Q4, the looming risk of a strike at East Coast ports in the U.S. adds a layer of concern.

• Did China Just Trigger Commodity Markets?
• China’s central bank last week announced a new stimulus package to the economy to curb the growth decline that is still going on.
• Chinese stocks jumped and also “Chinese-linked commodity prices” like soy, copper and steel gained momentum as Governor Pan Gongsheng announced plans to lower borrowing costs and inject more funds into the economy, as well as to ease households’ mortgage repayment burden.

• In the first quarter of 2024, Japan’s economy grew by 0.18% (QoQ).
• This growth is mainly attributed to real fixed capital formation, but also to real private final consumption expenditure to a lesser extent.
• These figures increased by about 2.53% and 0.43% (QoQ) respectively. 

• US rig count declined by one to 587 for the week ending 27/Sep, marking the sixth drop in seven weeks. Despite this, the rig count increased by six in Q3.
• The US oil rig count fell by four to 484 after staying flat last week. Gas rigs rose by three to 99, marking its second increase in six weeks.
• For the week ending 27/Sep, US energy producers added one rig in Texas and cut two in New Mexico and one in Louisiana.  

• Benchmark revisions in the UK’s quarterly national accounts data for Q3 cut business investment to bumble around pre-pandemic levels, offset by higher consumption.
• Households are still managing to raise their saving ratio to double their 2019 levels. Income has risen on their assets by a similar amount to gross savings.
• All shifts appear consistent with the intertemporal demand substitution channel of monetary policy. Deferred demand should support the hysteresis of high neutral rates.

• US natural gas prices jumped 19.2% for the week ending 27/Sept, marking the largest weekly increase since November 2023, driven by strong demand and concerns over supply cuts.
• Henry Hub Put/Call volume ratio fell to 1.03 (27/Sep) from 1.69 the previous week as put volumes fell by 45.5% WoW, while call volumes declined by 10.1%.
• Put OI increased for contracts expiring in October and November, while call OI rose for expiries in December, January, February, and March.

• China has implemented monetary and fiscal support measures to boost growth, including rate cuts and policies to stimulate real estate market.
• Market interprets these measures as more potent and impactful than previous rounds of stimulus, potentially driving asset prices and economic activity in emerging markets.
• Impact of Chinese measures on EM assets may also depend on sentiment, real economic activity, and commodity price channels, in the context of US rates and upcoming election.

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• SGX Iron Ore futures surged by $10.24/ton to $102.09/ton last week, hitting the highest level since July, driven by China’s stimulus announcement.
• A bullish technical signal emerged as the 9-day moving average crossed over the 21-day, yet RSI overbought levels (72.35) suggest a potential correction.
• Trading volume spiked mid-week but thinned near $105/ton, indicating waning volume above $100/ton and setting up volatility for a short-term price drop.

• China & HK allocations among Global funds have hit new lows, with 25.5% of funds avoiding the region entirely and a record 79.6% underweight versus the benchmark.
• In the six months leading up to recent stimulus measures, another 5.4% of funds fully exited their China & HK exposure.
• Tencent and Alibaba are well below their 2020 highs, while AIA Group ownership moved lower and China Construction Bank continues its long-term decline

• Markets have taken on a risk-on tone on the news of global central bank stimulus. Gold has rallied the most as real rates fell, equities rose and bond prices fell.
• But the market’s risk-on psychology appears to be stretched and fragile.
• While the long-term bullish trend is quite real, the consensus is susceptible to reversals should growth disappoint in the near-term.

• There is a possibility of a repeat of the events in 2000 Q4 and 2001 Q1, when economic conditions unravelled quickly and labour hoarding crushed corporate profits and equity valuations.
• Lower interest rates will typically support equities unless the corporate sector has committed large and persistent strategic mistakes, such as excessive investment or bad lending.
• Unfolding political events could push the economy into recession, despite the best efforts of the Fed. Profligate fiscal policy conduct could present challenges for the economy after the election.

• Bonds expect a second half-point cut at the next FOMC meeting, which is rare outside of recessions, while stocks are cheering the prospects of a soft landing.
• As the Fed’s focus shifts from its price stability mandate to its full employment mandate, investor expectations will depend on the strength of the jobs market.
• As leading indicators of employment weaken, the upcoming September Jobs Report could prove to be pivotal to market psychology.

• Hong Kong dollar is strengthening as demand picks up and the carry trade unwinds quickly.  Put/Call Skew declines for HSTech Index as traders sentiment reverses.
• Hengan International Group (1044 HK) and Galaxy Entertainment Group (27 HK) had breakouts from declining wedge patterns and have now formed new uptrends.
• Wuxi Biologics (2269 HK) had a breakout reversal from a U-shaped pattern indicating more upside.  The stock’s 200 DMA may provide little resistance to further re-rating.

• Lower fuel prices will be a key factor in September’s HICP, pulling y/y rate to 1.9%, which would be lowest in three years and despite little change in services inflation.  
• Indeed, the risk is of an even lower outcome. This may be short-lived given adverse base effects later this year before a more sustained fall below 2% occurs through 2025. 
• But the September projection is in line with ECB thinking as it leads to a Q3 outcome of 2.2%. 

• US employment report will be the focus. EUR/USD upside looks more restricted. Still scope for JPY and AUD gains.
• The US employment report at the end of the week is the main focus. We look for a significantly stronger than consensus report, with a 180k rise in non-farm payrolls
• This suggests an underlying USD positive pict ure for the week, but the payroll number isn’t released until Friday.

• A review of recent events/data impacting our investment themes or outlook
• China announces a barrage of  fiscal and monetary stimulus plans
• New LDP leader and Japan Prime Minister impacts the markets

• August’s PCE price data, up 0.1% both overall and core (0.09% and 0.13% respectively before rounding) shows the core rate softer than expected, and well below the 0.3% core CPI.
• Personal income and spending gains 0.2% and are both on the low side of expectations but a narrower August advance goods trade deficit of $94.3bn from $102.8bn leaves positive.
• Yr/Yr PCE prices fell to 2.2% from 2.5%, weaker than expected, though the core rate at 2.7% from 2.6% is slightly stronger than expected.

• Hello everyone, and welcome back to our weekly positioning update!
• Everything is about China these days, with both the PBoC and the Politburo preparing stimulus packages to save the Chinese economy from its nasty downturn.
• While the stimulus initiatives are not very large, relatively speaking (roughly a percentage of GDP on average across stimulus packages), markets clearly see the heavy amounts of proposed stimulus as a “whatever it takes” signal, sparking a strong momentum trend in the Hang Seng and China proxies.

• September’s month-end is always a significant period for xCcy markets, primarily due to window-dressing by financial institutions and the upcoming 3-month rolling into year-end.
• This leads to heightened volatility and liquidity adjustments, particularly noticeable around the xCcy basis.
• How bad will it be this year?

• What exactly are medium term lending facility, short term lending facility, Loan Prime Rates, Required Reserve Ratio, 7-day reverse repo rate, and 14-day reverse repo rate?
• The PBOC measures this week are wider and more all-rounded, compressing what is usually a month or two of actions into one single week.
• The intensity of  measures will give hope and expectation to even more measures to come and turn the long-term down trend of Chinese stocks to an upward momentum in short-term.

• European manufacturing PMIs signal recession, with Germany’s reading at 40.3, indicating deep trouble in the sector.
• China’s moderate stimulus measures aim to stabilize the property sector without excessive debt or household stimulus.
• Vietnam’s economic outlook is optimistic, driven by political shifts and expected pro-growth policies under General Secretary To Lam.

• USD strength is ebbing across the board, which provides a positive force for most EM currencies on a spot basis. 
• However, where inflation differentials are large, the downward pressure will remain in 2025 e.g. Turkish Lira (TRY)
• Where inflation differentials are modest against the U.S., but interest rate differentials are wider then this can mean modest appreciation – especially if the starting point is an undervalued currency. 

• China’s stimulus has positively impacted sentiment, although this is not the case in the Euro area due to falling PMIs and unexpectedly weak flash inflation releases. The Fed’s dovish pricing extremes have become less exceptional.
• The upcoming week’s data may further this trend, with the Euro area HICP tracking low and US pricing potentially susceptible to another drop in unemployment. Policy decisions will only be coming from Colombia and Poland.
• The most significant event of the week will be Powell’s speech.

• The biggest fuss of the market this week is the intensity of a number of PBOC’s measures, which, unconventionally, were jam-packed.
• In particular the 800 billion RMB fund directly loaned to security broker and corporate repurchases is a new and effective measure to revive the falling stock market.
• Whether the serial of different types of rate cuts and the stock market funds can revive the economy will take a few month longer to see.

• The U.S. economy is slowing, with the critical question being whether this is a soft or harder landing.
• Our broad analysis leaves us inclined to the soft landing view into 2025, though we shall watch real sector data closely over the next 3-6 months to check the trajectory. 
• Elsewhere, European growth should recover into 2025. Finally, China growth is set to slow to 4% in 2025, as slowdown in consumption adds to the drag from the residential property.

• WTO chief Ngozi Okonjo-Iweala’s request goes unheeded  
• EPP agriculture chief quotes EC chief offering temporary solution  
• EUDR system to be opened for user registration in November

• M&A / In Depth: Can China create its own Goldman Sachs with brokerage mega-merger?

• China-U.S. /: Asia New Vision Forum: China-U.S. ties should be ‘managed strategic competition,’ Rudd says

• Investment /: Asia New Vision Forum: Fresh stimulus package ‘great news’ for startups, VC investor says

• HK/China markets have entered a Bull market trend which was sparked by Beijing’s multi-faceted stimulus program.
• An overhang of extreme pessimism on China’s economy and markets will gradually dissipate as the media/analyst narrative will follow the market higher.
• As discussed in previous insights, a turn in sentiment is the key to not only moving the market but also to reviving the Chinese consumer.

• Welcome to our weekly EM/China Watch, where we examine the Chinese market from the perspective of Western investors.
• It’s been a significant day in China with the announcement of a range of measures by PBoC Governor Pan Gongsheng.
• China’s economic stimulus plan includes a series of monetary easing measures.

• The Chinese markets have warmly welcomed this morning’s news that the People’s Bank of China (PBOC) plans to introduce significant stimulus measures, surpassing market expectations.
• The most notable measure involves reducing borrowing costs on up to USD 5.3 trillion in mortgages and easing rules for second-home purchases.
• This has brought growth back into the spotlight.

• We begin with the Ifo Employment Barometer, which took a sharp downward turn, reinforcing the recessionary signals from last month’s data.
• In our view, it’s only a matter of time before Lagarde shifts her focus from inflation to employment, much like the Fed has done.
• Our models suggest year-over-year inflation will reach 2% by early 2025, making employment the likely next priority.

• The 2021 power shortage in China has captured the market’s attention, and begs the question of whether this coming winter is safe against blackout.
• Markets are concerned that any extended power outage may impose additional and even bigger headwinds to the Chinese economy on top of the looming Evergrande debt crisis and regulatory oversight.
• The 2021 power shortage in China was caused by the inability of state grids to raise electricity prices and a supply-demand shortfall in energy production sources, in particular coal. 

• Huy Anh Natural Rubber appoints Koltiva to help it  
• VRG holds training as per PEFC ST 2002-1:2024 Module Standard  
• Experts call for a national support website

• Crowding out has regained relevance post-pandemic, as large fiscal deficits put upward pressure on interest rates, contrasting with the post-GFC liquidity trap narrative.
• Global capital markets can no longer mask crowding out because simultaneous fiscal deficits in major economies constrain the potentially offsetting capital flow.
• The UK is opting for state-led interventions, crowding out the private sector by design, while the US stimulates private investment via public spending initiatives.

• Direct Reduced Iron (DRI) is playing a significant role in India’s steel industry, accounting for 33% of total steel output
• India’s DRI market is characterized by rapid growth driven by steel production targets and sustainable steel making practices
• DRI production is concentrated in central and eastern parts of India, with states like Chhattisgarh and Odisha being prominent producers and trade hubs.

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

• For the week ending 20/Sep, US crude inventories declined by 4.5m barrels, surpassing expectations of a 1.3m barrel drawdown. Gasoline and distillate stockpiles also decreased more than analyst estimates.
• US natural gas inventories rise 47 Bcf for the week ending 20/Sep, lower than analyst expectations of a 52 Bcf buildup. Inventories are 7.1% above the 5-year seasonal average.
• BP and Shell experienced rating downgrades and target price reductions, while TotalEnergies and Exxon Mobil saw upward revisions in their target prices.

• Asia New Vision Forum /: Dialogue between Hu Shuli and Heng Swee Keat on tackling global challenges 
• Central banks /: Asian central banks in no rush to follow Fed in cutting rates
• TikTok /: TikTok Music comes to the end of the track in strategy shift

• The fabled  PBoC Put is finally out in the open
• Is there a floor under the stock market, if not the property market?
• Has the asymetric opportunity now gone with this recent rally?

• The Riksbank cut its policy rate by 25 basis points to 3.25%, in line with consensus, and signaled potential further cuts at a faster pace if inflation and economic activity remain stable.
• Future rate cuts are likely, with two more reductions expected in 2025, contingent on sustained favourable inflation developments and improved economic activity.
• Uncertainty remains due to geopolitical risks, global economic conditions, and energy price volatility, which could alter the trajectory of monetary policy adjustments.

• The Fed’s 50bp rate cut was remarkably forceful relative to the resilient data. It relies on rates being far above their neutral setting despite no evidence for this tightness.
• Historical parallels to 1998 are mounting with the forceful start and conveniently timed political support. A repeat would mean an early pause and hikes returning in 2025.
• Brazil has tracked a year ahead of the Fed in the last hiking and cutting cycles. Its latest hike would also be consistent with the Fed following the 1998 scenario.