In today’s briefing:
- Euro Area Wage Costs Closer To Target
- Helixtap China Report: China Rubber Market Faces Continued Headwinds
- China Trip: Selective Buying
- The Drill Extra – Israel strikes Iran
- Asian Equities: Below the Headline Numbers, the Earnings Environment Is Improving
- Oil Prices Rise as Israel Attacks Iran’s Nuclear Facilities – What We Do
- Real Asset Chartbook Week #11: Digging Deeper into the Charts
- Asia base oils demand outlook: Week of 16 June
Euro Area Wage Costs Closer To Target
- Non-wage labour costs rebounded in Q1, damping the overall slowdown to a surprisingly modest extent after the crash in negotiated wage growth revealed in May.
- Unit labour cost growth has encouragingly slowed below 3%, with the latest impulse only 0.6% q-o-q. Any further easing here could encourage monetary easing to resume.
- Stability at a low unemployment rate still suggests the policy setting is close to neutral, so we doubt disinflationary pressures will mount further and forecast no more rate cuts.
Helixtap China Report: China Rubber Market Faces Continued Headwinds
- Physical-to-INE spreads indicate sluggish near-term demand
- Rising availability and tepid downstream suggests prices may remain under pressure
- April’s import and export data highlights the caution in the market
China Trip: Selective Buying
- Overall neutral but overweight AI, high tech, robotics, renewables and bio-tech.
- Trading Post is just back from China – two intensive weeks on the ground, meeting with companies and government across provinces.
- Three takeaways. First, China is back in business. Second, geopolitics and Trump’s trade war are re-shaping alliances. Third, innovation knows no boundaries.
The Drill Extra – Israel strikes Iran
- We have another round of Israeli strikes on Iran just as we have seen repeatedly since October 7th and the beginning of the Gaza war.
- This time, Israel targeted nuclear and missile installations as well as the very top of the Iranian military and intelligence leadership. The attacks were hugely successful, likely severely limiting Iranian response capabilities.
- So far, Iran has ‘only’ responded with smaller waves of drones, which the US and UK are helping Israel to shoot down.
Asian Equities: Below the Headline Numbers, the Earnings Environment Is Improving
- Headline Asia-ex-Japan EPS estimates have declined over the past 3 and 6 months, dragged down by China, India and Thailand and supported by Korea, Taiwan, Singapore and Philippines.
- Looking at earnings estimate trajectories of 100 Asian market-sector combinations, we identify 16 market-sectors with upward revisions over past 3 and 6 months. A month ago, we could spot eight.
- Korean and Taiwanese Technology and industrials, Hong Kong Technology Services and ASEAN Financials figure prominently among the sectors with robust and sustainable EPS estimate recovery.
Oil Prices Rise as Israel Attacks Iran’s Nuclear Facilities – What We Do
- YTD our absolute return strategy is up 12,0% Oil Prices Rise as Israel Attacks Iran’s Nuclear Facilities – What We Do Friday was marked by panic buying safe haven assets.
- Gold and Crude went up, risk assets went down. We’re now in a time of mass geopolitical uncertainty and related volatility.
- Therefore we think it is important to keep a cool head in such situations and don’t let headlines and breaking news change investment behavior.
Real Asset Chartbook Week #11: Digging Deeper into the Charts
- We will be very interested in what happens to the number of traders on the short side. With futures, small moves are magnified by leverage; as such, a significant move, like we are seeing today, is likely to have blown through various stop-out levels for traders.
- In volatile markets, stops become self-fulfilling prophecies – tight clustering near technical levels turns minor rallies into cascading short squeezes. We expect that number of shorts to continue to fall.
- If geopolitics is causing moves in the markets, we have to take a look at gold:
Asia base oils demand outlook: Week of 16 June
- Asia’s base oils demand could get support from surge in crude oil prices and concerns about disruptions to supply in Middle East.
- A sustained rise in crude oil prices would squeeze base oils margins.
- Lower margins could curb downward pressure on prices.
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