Macro

• Hong Kong market showed defensiveness during early August selloff and the overall breadth of the market continues to improve.
• J&T Global Express (1519 HK) received upgrades after reporting strong 2Q24 results.  Its SEA and China business showed growth in revenue and profitability.
• Galaxy Entertainment Group (27 HK) received an upgrade after revenue and EBITDA approached pre-COVID levels.  FIT Hon Teng (6088 HK) is seeing improvement in AI server, AirPod, and EV segments.

• Recent market disruptions, including a dramatic rally in the yen and a significant increase in the VIX, have raised concerns
• The convergence of US and Japan CPI rates may have contributed to the narrowing of Fed BoJ policy spread
• The VIX’s large move on August 5, 2019, has sparked concerns about the stability of the S&P options market and the potential impact on global risk levels

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• F&B / In Depth: A new Chinese food and beverage wave hits Southeast Asia Forget kung pao chicken and sweet and sour pork.
• There’s a new wave of food and beverage chains flowing out of China, and it’s all about Sichuan hot pot, braised chicken rice and pickle fish soup — as well as mainstays like bubble tea.
• Chinese food and beverage (F&B) companies have expanded quickly into Southeast Asia, and even into North America and Europe, in the past few years, driven in part by saturation at home.

• Broad increases in the flash services PMIs reinforced the signal that global activity remains resilient enough not to require forceful monetary easing.
• Residual seasonality hasn’t appeared in the PMIs again this summer, but it pollutes some unemployment data. A slight majority of countries have a higher UR than a year ago.
• Softening labour market trends from a relatively neutral cyclical position are consistent with gradual and limited rate cuts, even if they need reversing without a recession.

• For the week ending 16/Aug, US crude inventories dropped by 4.6 mb, exceeding the expected 2 mb drawdown. Gasoline and distillate stocks also declined, surpassing analyst expectations.
• US natural gas inventories rise 35 bcf for the week ending 16/Aug, exceeding analyst expectations of a 26 bcf buildup. Inventories are 12.6% above the 5-year seasonal average.
• UBS cut its target prices on Halliburton and Schlumberger but raised it for ExxonMobil and Occidental. Jefferies lowered its target price on Chevron.

• Hello and welcome back to our weekly positioning update.
• Markets are as tricky as always, as everyone is trying to grasp how Powell will address all the new information coming out of the labor market recently, with NFP constantly being revised down, California job gains revised down massively while jobless claims look less scary.
• Despite parts of the labor market looking slightly weak, the signs we are getting from the real estate market is looking strong in contrast, which could make the Jackson Hole symposium a bit more interesting as Fed are starting to focus (almost) solely on their Employment / Growth mandate.

• Though China’s authorities have taken action to help the construction sector, negative drags from the excess completed housing and uncompleted projects weigh on the construction, steel, and cement sector.
• Aggressive policy action is need to stabilize the housing market otherwise the effects will remain and could get larger.  
• China authorities for now however are focused on incremental policy support (i.e. drip by drip support).     

• After selling its coking coal business to Glencore Plc (GLEN LN), Teck Resources (TECK US) has pivoted to copper as its primary growth driver. 
• The 7.3 bn CAD cash (20% of Mkt cap) received from the sale of the coal business stake is being used for buybacks, debt repayment, and growth opportunities.  
• The stock is cheap on an EV-EBITDA basis at 7.5x, but we are not too fond of the business’s low ROCE. 

• The Bank of Korea maintained the Policy Rate at 3.5%, consistent with the consensus, due to the need for further confirmation of inflation trends and concerns over financial stability, particularly in the housing and foreign exchange markets.
• Global economic uncertainty, including fluctuations in US monetary policy expectations and geopolitical risks, will significantly influence the timing of future interest rate decisions.
• Domestically, the Bank of Korea is balancing moderate growth, driven by strong exports, with the risks posed by rising household debt and housing prices, suggesting a cautious approach to any potential rate cuts.

• Inflation for the first half of August stood at -0.03% bw, and on an annual basis, it decreased from 5.52% to 5.16%.
• Core inflation fell below 4.0% for the first time since February 2021.
• The revision to the CPI methodology shows a higher weight for services and a lower weight for energy products.

• Emerging Market allocations are stabilizing among active Global equity funds.
• Country-Level shifts show China & HK allocations more than halving since 2022, while Taiwan has seen strong gains. India becomes the top country underweight.
• Alibaba has declined to record lows, Tencent ownership is stabilizing, and TSMC has reached new highs.

• Welcome to this week’s Great Game, where we continue to cover the situations most likely to impact global markets.
• Currently, that’s the war in the Middle East and the potential harbor strike on the US East Coast.
• Doha cease-fire talks: The latest Gaza ceasefire talks in Doha ended without a breakthrough, but new negotiations are set for next week in Cairo.

• Bank Indonesia’s decision to keep the BI-Rate steady at 6.25% aligns with expectations, reinforcing a pro-stability stance to manage inflation and Rupiah stability amid global uncertainties.
• The easing of global financial market uncertainty amid solid domestic growth influences interest rate decisions that focus on balancing inflation control and sustaining economic momentum.
• Bank Indonesia’s commitment to Rupiah stabilization and maintaining inflation within the target range remains central to its monetary policy, supported by effective interventions and optimized monetary operations.

• China’s M2 (USD42.04trn) is double the size of US M2, having risen 10.4-fold in 18 years (far faster than the 3.1-fold increase in US M2 over that period). 
• Attempts at further monetary ease (RRR/rate cuts, QE) are futile, as they induce larger capital flight, and fail to rekindle credit demand amid PPI deflation and real-estate over-capacity. 
• RGDP growth is likely to weaken in H2CY24 as FAI and industrial growth flag, and retail sales stay sluggish. A larger trade surplus won’t help, as FX reserves stagnate. 

• Airlines / In Depth: Domestic carriers add global routes as foreign rivals quit China amid sluggish demand, Russia ban Since China dropped the Covid-era restrictions that slowed international flights to a trickle, the experience of domestic and foreign airlines has diverged sharply.
• Many foreign carriers are scaling back their operations in China and in some cases completely withdrawing from the market, largely because the need to avoid Russian airspace has sent their costs spiraling and made them uncompetitive against Chinese rivals who can still fly over the country’s northern neighbor.
• Meanwhile, Chinese airlines are ramping up their overseas routes, particularly to the Middle East.

• The Bank of Thailand maintained the Policy Rate at 2.5% by a 6 to 1 vote, reflecting confidence that current monetary policy is appropriate for balancing economic recovery and inflation management despite underlying structural challenges.
• Economic growth is driven by tourism and domestic demand. Uneven recovery across sectors and structural headwinds in exports and manufacturing necessitate close monitoring of risks to private investment and consumption.
• Inflation is expected to return to the target range by the end of 2024, with concerns over credit quality deterioration in SMEs and households prompting the Committee to support targeted measures aimed at maintaining financial stability.

• We expect inflation for the first half of August to be 0.02% bw, as agricultural prices continue to reverse the increases observed in June and July.
• On Thursday, in addition to inflation data, new consumer basket weights will be released.
• Typically, inflation for this fortnight averages 0.29% bw.

• The Ministry of Economy released preliminary estimates of foreign direct investment for the second quarter of the year.
• Up to June, USD 31 billion arrived at the country, concentrated in Mexico City, in the manufacturing sector and in the reinvestment component.
• In the first half of the year, foreign investment increased 7.2% annually, showing a sustained expansion since 2022. 

• Take aways: Low margins and high stock levels mean that China will export its excess metal capacity. Other commodities like crude and its derivatives look weak as well. Gold only strong performing commodity in China due to domestic economic weakness .
• Welcome to this week’s energy cable with a focus on the economic troubles in China and its impact on commodity prices.
• This week’s piece will have a lot of charts, therefore we’ll keep the text short.

• We believe, contrary to the increasing view of centralising trend, China is possible to undergo a series of decentralisation, revitalising the competition spirit of provinces and counties.
• It is questionable whether President Xi is capable of fine-governing each local provinces, no matter how talented he is, as China is a big country.
• Improvement in technology is enabling the autocratic government to micro-manage the country, but if there is only one top guy to decide on everything, such system is bound to collapse.

• The latest policy proposal is one step closer but still incremental
• Incremental steps taken so far have been ineffective in the short-term
• The ideal solution would be full intervention by the Central Government

• Economic readings show that China’s economy is still mired in a malaise. Households remain defensive by doubling down on savings, which feeds into muted investment and hiring by firms. 
• With a property market rebound not forthcoming, the negative wealth effects are keeping economic agents downbeat. 
• The failure of its strategy of repeated small stimulus doses has not spurred Beijing into more decisive action. Without that, the economy could fall into a deflationary trap.

• US oil and gas rig count fell by two to 586 for the week ending 16/Aug, indicating a decline for the second time in three weeks.
• US oil rig count fell by two to 483, after rising by three the previous week. Gas rigs increased by one to 98, after declining for three straight weeks.
• For the week ending 09/Aug, US crude oil production fell back to 13.3m bpd, after hitting its record high of 13.4m bpd the week prior.  

• Kidnappings / Cover Story: Chinese gamble with their lives in the Philippines amid waves of kidnappings 

• Marriage /: China looks to make tying the knot easier as marriage rate continues decade-long decline

• Bonds /: Investors are warming to panda bonds, Deutsche Bank executive says

• The final EA inflation print broadly confirmed the flash release’s surprise rise to 2.58% in July, with services only slowing to 4%. Median rates are pushing above 2% again.
• Annual underlying inflation measures are still slowing, but the extent is being revised higher, and so are headline consensus forecast profiles.
• Renewed slowing over the next two months, while medium-term projections are stable, should allow the ECB to cut in September. Resilience should urge cautious restraint.

• Riksbank appear more concerned about a weak economy, which is causing forward guidance of a faster pace of easing after Aug 20 25bps cut to 3.50%.  
• We look for 25bps cuts at the September and December meetings and a 25bps cut is possible in the November if inflation remains under control and real sector further disappoints
• The statement indicated that the Riksbank would be looking to cut a further two to three times in 2024, which is more dovish than expected.

• On 20 August, the FSS provided guidelines for the internal control and stock balance management system for institutional investors that plan to engage in short selling in Korea.
• The time frame to complete the internal control and stock balance management system is to complete them by end of this year.
• The time frame to complete the internal control and stock balance management system is end of this year.

• China’s steel industry is facing significant challenges, including price drops, overcapacity, and government intervention
• Steel producers are preparing for potential consolidation and supply side reforms to address the industry crisis
• Iron ore prices have also been impacted by the challenges in the steel market, with expectations for lower Chinese imports and domestic output

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• Guest is Saurabh Mukherjeeya, founder of Marcellus Investment Managers and advocate for investing in India
• Contrasts India and China, highlighting India’s better performance over the years
• Discusses the reasons behind India not receiving as much attention in terms of foreign investment compared to China, with recent shift towards investing in India

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• Inflation rates are gradually slowing, with both headline and core inflation in line with expectations and at multi-year lows
• Housing prices showed more firming than expected, particularly in rental markets
• Markets are pricing in very soft core CPI inflation over the coming months, with expectations for gradual disinflation and a focus on wage growth by the Fed

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• Japan peaked in 1989, but then experienced decades of underperformance and false dawns in terms of economic growth and stock market valuations
• Recent changes in Japan, including increased inflation, wage growth, and more shareholder-friendly behavior from corporations, are leading to renewed optimism for investors
• Japan’s history of stagnation and deflation created risk-averse investors, but recent policies and efforts are turning the economy around, making it an exciting investment opportunity

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• During last week, the International Energy Association (IEA) as well as OPEC both announced that demand for oil is slowing, revising down previous demand forecasts for the year and beyond.
• The world is seeing a major deceleration in oil demand growth led by China, with inventories set to rise next year even if OPEC+ were to postpone its plans to ease output cuts, the IEA stated.
• Meanwhile, the growth from the US won’t be able to offset the slowdown from China, according to the agency.

• Welcome to our weekly “The Week At A Glance” publication, where we explore the most important key figure releases and tradeable themes for the upcoming week.
• We remain almost exclusively long on USD fixed income, and therefore, our attention is particularly focused on two key developments this week:
• The Jackson Hole Conference and Ueda’s Appearance in the Japanese Parliament. Revisions to U.S. Employment Data: The Bureau of Labor Statistics (BLS) will release first-quarter 2024 data from the QCEW on August 21, 2024, at 10:00 a.m. (ET).

• Volatility continues to ease with US recession fears and Bank of Japan induced volatility fading
• Several central banks, including New Zealand and the Philippines, have joined the rate cut party, while Norway’s central bank kept rates unchanged
• US CPI report showed higher than expected inflation, particularly in rental and OER inflation, with expectations of continued growth at close to trend level in the US economy

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• As most of you know, we remained upbeat on the cycle until around mid-July, as growth parameters continued to perform solidly in real-time, while inflation also posed a risk of re-acceleration.
• Our real-time tracking of the three main macro parameters is the cornerstone of our macro thinking, and through July and August, we have begun to observe a significant shift.
• The risk of rising inflation has collapsed, while growth momentum has also weakened substantially.

• There are notable differences in short-term prospects for oil demand.
• These differences become more pronounced when considering the timing of ‘peak oil’.
• ‘Peak oil’ refers to the hypothetical point at which global oil production will hit its maximum rate before declining.

• The past week saw insights on Sea Ltd (SE US), GoTo Gojek Tokopedia (GOTO IJ), Grab Holdings (GRAB US), and Comfortdelgro Corp (CD SP).
• There were also macro insights on Indonesia from Manu Bhaskaran and on the Philippines, as well as the CrossASEAN Ground Zero and an SET Index Rebalance Insight from Brian Freitas.
• The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated substantive, and actionable insights, macro and equity bottom-up, from across Southeast Asia.

• The U.S. stock market is poised for a period of continued strength.
• Four reasons to be tactically bullish on stocks: price momentum; a sentiment reset from bullish to caution; the historical bullish record of VIX spikes; and positive  internals.
• We continue to favour non-Magnificent Seven leadership for the next bull phase.

• Japan equity ETF flows have not recovered from the carry trade sell off.  Hong Kong Southbound Connect flows continue to be positive this month.
• Qifu Technology (3660 HK) , Q Technology Group (1478 HK) and JD Logistics (2618 HK) all advanced on strong 2Q earnings announcements. 
• Tencent Music Entertainment Group (1698 HK) disappointed on earnings and monthly user numbers.  Country Garden Services (6098 HK) declined in anticipation of a large drop in earnings in 2Q 2024.

• A review of recent events/data  impacting our investment themes or outlook
• Expectations for future US interest rate cuts get dialed back – JPY impact
• CFTC data shows speculative froth has come out of some markets

• Our assessment of the U.S. economy is a “not too hot, not too cold” Goldilocks scenario that’s supportive of risk assets.
• We have an economy that’s showing decelerating, but not recessionary, growth and the start of a rate cutting cycle.
• Even though forward P/E valuations are somewhat elevated compared to historical norms, this should not be a concern as interest rates fall and EPS growth continues.

• Looming political changes in Japan could impact the conduct of monetary policy, following earlier and intense pressure to arrest the sharp decline in the yen during 2024.
• The four contenders for becoming the new Liberal Democratic Party (LDP) leader do not all share the same views on the BoJ’s attempt to normalise policy settings.
• An extended policy adjustment pause by the BoJ could be detrimental to its credibility, analogous to what befell the Fed after the infamous 2013 taper tantrum.

• Iron ore found no support at the 95-100 USD/ton range for the first time in a while and broke through it, gapping down 8.8% WoW to 92 USD/ton.
• This break is a major short-term bearish signal for iron ore prices, as market participants would lose confidence in the theory of cost support at 95-100 USD/ton. 
• TSF data and mill margins ( -575 RMB/ton) from China also do not inspire much confidence in the near-term outlook for iron ore. 

• With increasing market volatility, base metals continue their rocky weekly performance. Copper is up marginally, taking it past 9000 USD/ton.
• Copper inventories continue to pile at the exchanges, with ~500k tons combined at Comex, LME, and Shanghai, up almost 7% in the last two weeks. 
• We believe accumulating names like Southern Copper (SCCO US) and Ivanhoe Mines (IVN CN) with good long-term fundamentals is a great strategy. 

• FOMC minutes from the July 31 meeting are due on August 21
• We expect the minutes will show a cautious tone on inflation, needing to see more data before easing, but increasing concern over rising unemployment, which July non-farm payroll data show.
• Still, the tone on inflation is likely to be cautious enough to suggest that a 50bps move in September remains unlikely.

• For the week ending 09/Aug, US crude inventories increased by 1.4 mb for the first time in seven weeks, contrary to analyst expectations of a 1.9 mb drawdown.
• US natural gas inventories fell by 6 Bcf, its first decline since 04/Apr. However, storage levels are up 6.8% YoY and 13% above the 5-year seasonal average.
• Wells Fargo, UBS, and BMO Capital reduced their target prices on Occidental. BMO Capital lowered its targets on Chevron and Halliburton but raised its target on Exxon Mobil.

• While the RMB’s share in international trade has been gradually increasing over the years due to efforts to internationalize the currency, it accounts for only 2-3% of global trade settlement.
• RMB is the fourth most actively traded currency, behind the US dollar, euro, and British pound but ahead of the Japanese yen in global payment rankings.
• We believe further internationalisation of RMB hinges on its monetary system, which has to be reformed to avoid the instability involved in opening up the capital account.

• CPI dropped to 2.9% YoY in July, the lowest since March 2021, while Core CPI cooled to 3.2% YoY, reflecting a broad-based softening in inflation.
• Retail sales surged 1% MoM, driven by a volatile 3.6% rise in motor vehicle sales, signaling resilient consumer spending despite mixed economic conditions.
• Manufacturing and industrial production contracted, pushing the GDPNow forecast down to 2.4%, highlighting persistent weakness in these sectors.

• We reduce the long US and Hong Kong markets positions as we close some short put positions, until Fed interest rate cut in September, and then thereafter for a month.
• Particularly we close some short put positions in Tracker Fund and AAPL. On the other hand we are not all pessimistic in short term, calling on LINK Reit (HKG: 0823)
• Overall all our positions in the US and Hong Kong markets are all long, but we are waiting for a strike moment one, two days before the Fed rate cut.

• EIA maintained its 2024 oil demand forecast but cut its 2025 estimate by 160k bpd. OPEC reduced its 2024 and 2025 forecasts by 135k and 65k bpd, respectively.
• Total production of OPEC members obliged to implement supply cuts averaged 21.45m bpd in July, exceeding the target by 1%.
• EIA lowered its 2024 and 2025 oil price forecasts due to slower demand growth. However, it still expects prices to rise in H22024 led by a decline in inventories.

• US retail sales data remained strong this week, despite surprise rate cuts in New Zealand and the Philippines, indicating no need for more aggressive easing.
• Upcoming decisions from Sweden, Thailand, Indonesia, and Korea will be closely watched for further signs of this dovish trend, despite data and risk assets holding up.
• Flash PMIs will be the main focus next week, particularly in the US where the high level is considered vulnerable.

• Japan’s Q2 economic rebound may be misleading due to annualized reporting; future slowdown is a concern.
• Political instability in Japan and Thailand, with both countries’ leaders stepping down amid economic challenges.
• We maintain a cautious market outlook, especially on Thailand’s struggling economy and currency.

• Retail sales and GDP data broadly matched resilient expectations. Sales rebounded to trend in July after strikes and lousy weather temporarily stalled GDP in June.
• Activity growth is tracking above its potential pace for the third consecutive quarter in Q3 as the UK economy remains in rude health that defies monetary tightening.
• Unchanged unemployment over the year corroborates this signal that monetary policy isn’t that tight. Rate cuts risk proving premature to the point they need reversing.

• Welcome to our Weekly EM Watch, where we look at China and other large EM countries through the lens of Western macro investors.
• Over the past week, we received the latest quarterly update on Chinese foreign direct investments and the situation went from dire to abysmal.
• There is a net negative inward FDI flow, and despite a significant $190 billion surplus in customs goods and services, the basic balance, which comprises both the current account and FDI, recorded a substantial deficit of $30 billion for the first time.

• Wide dispersion of returns has meant that industry sector investing  was a major performance contributor in Hong Kong
• Lygend Resources & Technology (2245 HK) brokeout after Indonesia announced a moratorium on new nickel mining permits.  Sino Biopharmaceutical (1177 HK) broke its falling wedge pattern after announcing results.
• Wynn Macau Ltd (1128 HK) broke to a new low after announcing a disappointing 2Q EBITDA.  The sector is also affected by a crackdown on illegal money exchange operations.

• JPY sensitive names and foreigner favourites are unlikely to be the next driver of the market.
• Sectors not dependent on a weak Japanese Yen are more likely to be the next winners
• While individual stocks will still benefit from corporate governance reforms, a rising tide will not lift all boats as it has done over the last 18 months

• Overall this print doesn’t change the picture a whole lot.
• Inflation is soft enough for the Fed to cut, but it is not a “slam dunk” disinflation report either.
• It is once again shelter and transportation that are standing in the way of a soft US CPI print.

• Global market turbulence has had a spillover impact into EM, but also some EM assets have benefitted from rotation away from the U.S. 
• We see scope for a 2 wave of U.S. equity and Japanese Yen (JPY) correction,  as September rate cut is approaching.
• Brazil and Mexico yield risk premia are high, though event risk surrounds Mexico with November’s U.S. presidential election . Some rotation could be seen into EM equities.

• The Norges Bank kept the policy rate unchanged at 4.5%, consistent with expectations, as inflation trends lower but remains above target, and economic growth is subdued.
• This decision was influenced by a weaker krone, lower-than-projected inflation, and slightly higher unemployment, signalling the need for a cautious approach to monetary policy.
• The central bank is prepared to adjust the policy rate depending on future inflation trends, economic developments, and global factors, with the policy rate likely remaining at 4.5% for some time ahead.

• Overall, the July data is consistent with our forecast of a weaker H2 and we still look for 4.7% GDP growth for 2024.
• The data is also consistent with our forecast of 4.0% in 2025 GDP growth. Consumption behavior could stall further and cause more of a drag than we anticipate.
• We now see a 30% probability that 2025 growth could be below 4%.

• Overall, the July data is consistent with our forecast of a weaker H2 and we still look for 4.7% GDP growth for 2024. 
• The data is also consistent with our forecast of 4.0% in 2025 GDP growth. Consumption behavior could stall further and cause more of a drag than we anticipate.
• We now see a 30% probability that 2025 growth could be below 4%.  

• The BSP’s decision to cut the policy rate by 25 basis points to 6.25% defied consensus expectations. This strategic shift towards a less restrictive monetary policy responds to an improved inflation outlook.
• Domestic demand remains solid, and the economic environment is favourable, with strong GDP growth and declining unemployment.
• Future policy decisions will focus on balancing inflation risks with economic growth, with the BSP remaining vigilant and ready to adjust its stance based on evolving macroeconomic indicators.

• The inflationary implications of Modern Monetary theory have finally been exposed in the aftermath of the COVID-19 pandemic after 2022
• The risks of inflation were underplayed due to prolonged disinflationary impulses stemming from decades of globalisation. Recent US practice of MMT could force the Fed to raise its inflation target.
• Japan pursued an MMT framework since 2013, but the continuation of quantitative easing and arrival of rising inflation is undermining the yen. The Eurozone faces the same predicament as Japan.

• Shipping / In Depth: Chinese shippers’ diverging fortunes 

• Macao / Macao takes aim at currency exchange services for gamblers

• Personnel / Securities watchdog official named head of Shenzhen Exchange

• Indonesia’s 2Q24 GDP continues the pattern of recent years of remarkably stable growth, but other data paint a more mixed picture when it comes to underlying demand.
• Changes in demand conditions may tilt the growth-inflation tradeoffs in favour of earlier rate cuts by Bank Indonesia, but pressures on the rupiah may limit its scope for action.
• Recent signs of mixed messaging and flip-flops in areas of fiscal policy, trade policy, and the new capital are signs that decision-making is being compromised by politicking

• Iron Ore Price Decline: Iron ore prices dropped 1.7% in Week 32, driven by reduced steel output and fading demand. Stimulus-driven rally failed to sustain.
• Options Market Trends: Weekly options volume surged, with put volume increasing 106%, pushing the put/call ratio to 1.33, indicating bearish sentiment.
• Implied Volatility Shifts: Implied volatility (IV) surged midweek, particularly for September contracts, reflecting increased market uncertainty; options skew narrowed to just 0.3% suggesting more expensive calls.

• The recent market turbulence is partially due to a reduction in risky positions. The US economy is also slowing, while Eurozone data shows the recovery is not gaining momentum.
• China data points to a H2 slowdown.  This will be a bumpier environment in H2 2024.
• We see scope for a further correction of the S&P500 to 5000, with USDJPY down to 140.  Fed easing likely starts in September, supporting U.S. equities at lower levels. 

• We expect a 12.5bp hike in the policy rate in Sep’24, as CPI inflation (2.52%YoY in Jul’24) remains well above the 2% target amid CBC concerns about overheated property markets. 
• Real GDP grew 5.1%YoY in Q2CY24, following 6.6%YoY growth in Q1 (both faster than mainland China). Exports grew 10%YoY in Jan-Jul’24, and export orders growth is at a 2-year high.
• The market’s trailing P/E ratio (23.56x) is well above its 20-year mean (19.84x). But we recommend a mild Overweight in Taiwan equities, with a focus on the largest tech stocks. 

• UK inflation increased in July on household energy utility price base effects, but unusual downside news in services prices limited the move to 2.2% and 3.6% on the CPI and RPI.
• The BoE erroneously extrapolated recent services strength, so a return to the downward trend would widen the gap in the coming months, but its predictive power is poor.
• Slowing trends can aid the MPC to cut again in November but further headline rises and excessive wage pressures should encourage at least a longer pause afterwards.

• The RBNZ unexpectedly reduced the OCR by 25 basis points to 5.25%, citing weakening domestic economic activity and a decline in inflationary pressures, contrasting with the economic consensus of no change.
• The decision reflects a balance between maintaining restrictive monetary policy to ensure inflation remains anchored and responding to broader global trends of easing inflation and subdued economic growth.
• Future interest rate decisions will be influenced by the pace at which domestic inflation pressures dissipate, the stability of inflation expectations, and the evolving global economic conditions.

• Welcome to this week’s Great Game! Once again, we’re focused on the two big wars going on – Ukraine and Gaza.
• What are the risks, what will hit markets and what’s the outlook?
• Last Tuesday, Ukraine launched an offensive into Russian territory in the Kursk and Belgorod Oblasts.

• Happy Monday from Copenhagen!As usual, we use Monday to look ahead at the upcoming week.
• We are currently focused on the Nat Gas trade, which is trending aggressively upward due to 1) Ukrainian disruptions affecting the remaining MCMs flowing through the Brotherhood pipeline, 2) the upcoming Norwegian maintenance season, and 3) very early signs of bottoming demand.
• It still seems mostly driven by the supply side, with the current drawdown in supplies via Sudzha in Russia accounting for around 0.5% of daily inflow.

• Take aways: Norwegian maintenance season and no flows from Russia is a spicy mix. Temperature is the main factor for worries about stock levels 2022 mayhem may be closer than you think. Refiners’ capacity utilization weak causing fear of crude gluts
• Fears in natural gas markets have returned as Ukrainian troops are giving Putin his own “Operation Citadel” moment.
• While many European countries have sought alternatives to Russian gas, nations like Austria and Slovakia still depend on it.

• XLF Decline Post Rate Cuts: The Financials Select Sector ETF (XLF) declined by an average of 5.6% in the six months following the last three monetary policy pivots.
• Credit Delinquency Risks: Rising credit card delinquencies, now at 10.93% for severe cases, pose a significant risk to financial firms within XLF, potentially amplifying their underperformance as rates decline.
• Utilities Sector Advantage: Utility companies tend to outperform during rate cuts due to reduced debt payments, with the sector seeing a ~6% spread increase compared to the S&P 500.

• Carry strategies experiencing drawdowns, wiping out YTD gains
• Market expected to stabilize after recent shocks, carry strategy appeal diminished
• Yen likely to take a breather, BOJ stance unchanged, market normalization ongoing.

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• This week likely marks the end of the positioning squaring phase, as multiple positioning gauges now signal that trades are no longer as extended as they were 2-3 weeks ago across various assets.
• This shift provides an opportunity to revisit our strategies and assess where macroeconomic trends might be steering global assets next, now that the worst of speculative activity has subsided.
• As we all know, the CFTC report is always a week behind in updating markets on positioning, making last Friday’s report particularly interesting.

• CPI inflation receded to a 59-month low of 3.5%YoY in Jul’24, with food inflation abating to 5.1%YoY (from 8.4%YoY in Jun’24), as vegetable inflation fell to 6.8%YoY (from Jun’24’s 29.3%YoY).
• Whilst retaining its 6.5% policy rate on 8/8/24, RBI forecast 4.4%YoY inflation in Jul-Sep’24, and 4.7%YoY in Oct-Dec’24; we expect 4.2%YoY and 4.3%YoY respectively, amid 8-10% above-normal monsoon rainfall.
• The policy repo rate will likely decline 50bp by Dec’24 and a further 50bp to 5.5% by Jun’25. Rate sensitives like banks, auto-companies, NBFCs and property stocks will benefit. 

• Weak employment data led to a shift in Fed forecast, with projected rate cuts in September and November
• Rates have backed off from lows, with markets pricing in a less dovish path
• Treasury market in transition, with dealer balance sheets at bloated levels and auctions showing poor results due to lack of demand from traditional investors.

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• Unemployment shockingly plummeted to 4.16% in June as the single-month rate hit its record lows. The overstated preceding rise is unwinding, with underlying trends flatter.
• Headline pay growth slowed as expected amid powerful base effects, but the monthly impulse remains excessively high because pay awards remain elevated.
• The news clashes with August’s narrowly delivered cut, so the BoE may downplay it as statistical noise or labour hoarding. Rates should be firmly held in September.