Macro

• The betting odds on a Trump victory in November have risen substantially, but the markets haven’t fully discounted such an outcome.
• Investors who want to position for Trump 2.0 should seek long inflation exposure (long gold/short bonds) and short globalization (long domestic producers/short transportation and logistics).
• Notwithstanding the growth outlook, equity returns may be more challenging as Trump 2.0 will see the S&P 500 at more lofty multiples than the P/E ratio of Trump 1.0.

• The media are universal in their belief that a second Trump presidency will produce higher inflation. Fed Chairman Powell would serve the remaining segment of his current term if elected. 
• A further reduction in corporation tax and making the 2017 personal income tax cuts permanent are key fiscal policy goals of President Trump if elected for a second term.
• Import substitution will raise inflation pressures unless there is supply-side transformation in the economy. Protectionism will reduce capital flows to the detriment of long-term interest rates and dollar exchange rate.

• The stock market recently underwent a Great Rotation. Leadership violently rotated from growth to value, and from NASDAQ stocks to small-cap stocks. 
• The reversal was accompanied by a sudden downdraft in the S&P 500. Is this the start of a correction?
• Even though breadth indicators are improving, which is bullish, we would not be so quick to buy any dip that appears.

• 24 days after his catastrophic debate, and 29 days before the Democratic convention, President Biden dropped out of the presidential race and endorsed VP Kamala Harris as the Democratic nominee. 
• The latest polls showed Trump leading Biden by 3pp in the average of polls, including big leads in all seven battleground states. Harris is marginally closer in match-ups against Trump. 
• Trump-Vance have momentum after RNC. To be competitive, Harris (if endorsed by DNC) would need to pick an exciting, moderate candidate (eg, PA governor Shapiro) and hew to the centre.

• John Greenwood, the Father of the Hong Kong Linked Exchange Rate System, has formed a model for debt crisis. And that framework is predicting monetary contraction in the U.S. economy.
• As leveraging goes down and the monetary conditions contract, the market can experience a sharp correction in stage 3.
• Since the monetary conditions in the U.S. easily find its way to Hong Kong through the Linked Exchange Rate System, There might be a rough outlook ahead for Hong Kong.

• Copper retreated by more than 5% due to China’s weak print on TSF. The plenum’s lack of concrete stimulus measures also did not help matters. 
• Check out our initiation, Copper Primer: What We Like About Copper And What to Play, where we provide our long-term bullish outlook on copper. 
• Also, see our initiation, Southern Copper: In a League of Its Own. The company reported a stellar Q2 FY24, beating the street estimates by 20%.

• Iron ore has remained rangebound between 95 and 130 USD/ton for three years, with cost-curve support kicking in on the higher cost curve at around 100 USD/ton.
• Last week, quarterly operational updates released were for Vale, BHP, Kumba, and Mount Gibson. Except for BHP, all companies were disappointed due to provisional pricing impacts and mix changes.
• Read our recent production preview Fortescue Metals Group (FMG AU): High Dividend Yield of 9%, What to Expect From Q4 FY24, to be declared on the 25th of July. 

• Today, I am going to address three main topics of concern for investors given the current conflicting signals from the US economy.
• These are the key questions I will address, and I will summarize both the pros and cons of each viewpoint, including my own bottom line: Is liquidity no longer improving, but rather at risk of weakening in the coming months? Is the economy accelerating rather than slowing? Is the commodity complex heavily undervalued or overvalued?
• The equity rotation paired with the sharp sell-off in Tech has had me thinking, and we therefore need to litmus-test every corner of our current thesis. Follow along below.

• Shift to the right in favor of Trump accelerated after assassination attempt
• Republican momentum challenging expectations for a divided Congress
• Gold and oil likely to benefit under GOP control, with potential increase in demand and production respectively

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• Korea Value-Up index is finally expected to be launched in September 2024 which is likely to include at least 100 companies in KOSPI and KOSDAQ.
• There are expectations that Korea’s Value Up index could resemble JPX Prime 150 index which is a Japanese version of the value up index launched last year.
• We provide 70 stocks in Korea that could be included in the Korea Value Up index. These 70 stocks could outperform the market in the next several months.

• Productivity has declined 0.95%YoY on average over the latest 8 quarters, with Singapore’s economic growth depending entirely on rather rapid 4.85%YoY average growth in employment. 
• Jun’24’s 6.7%YoY decline in real NODX indicates real GDP growth for Q2CY24 will be revised down to 2.5%YoY (from the 2.9% advance estimate); strong re-exports also suggest manufacturing’s declining competitiveness. 
• Fiscal policy has returned to its contractionary norm, with this year’s surplus likely to be over 1% of GDP, reining-in RGDP growth to 2% for 2024 (and 1.3%YoY for H2CY24). 

• Good Afternoon from Europe. It’s incredibly hard for me not to begin this weekly EM blog by emphasizing how bearish I am becoming on Copper, given the current developments out of China.
• Chinese trends are diverging rapidly both internally and externally—the export sectors are performing well, while internal consumption growth is far from firing on all cylinders.
• Ahead of the conclusion of the CCP Plenum, we noted that China Daily posted several upbeat stories on the GDP outlook following the release of a slightly disappointing Q2 report.

• The manufacturing survey shows that the stagnation in manufacturing production in May stems from a combination of slowing external demand and stagnation in domestic demand.
• At the sectoral level, there is great heterogeneity in the capacity used.
• Last week, the National Institute of Statistics and Geography (INEGI) informed that manufacturing production stagnated in May (0.01% MoM) and accumulated a contraction of -1.8% so far this year (https://bit.ly/MXDAILYESP_2024_07_12).

• US stock market is diverged in the past week, as DOW breaks new time height and NASDAQ retreats. S&P500 declines likewise.
• Hong Kong Hang Seng is down but is still within our forecast range of 16000 level to 18000 level.
• We suffer huge loss as our long call bets on Nvidia, Apple, Microsoft went sour. We are still keeping the positions in the hope that the trades will turn around.

• Once again, Mexican stocks had a negative day in line with the pessimistic sentiment observed in the North American stock markets.
• In particular, the IPC index fell 1.31% to trade slightly above 53 thousand units. At the end of the session, 27 of the 35 companies included in the main local index had falls in their share prices
• The mining company Industrias Peñoles (PE&OLES * -4.65%) and the financial company Regional (R A -4.43%) had the largest share price declines at the end of the session. 

• UK economic data was mostly as expected, but increased services inflation tipped the balance towards a hawkish stance. The ECB maintained flexibility but is likely to cut rates in September, and the BoE may need to reassess previous data to avoid a rate cut in August.
• The Bank of Canada may respond to rising unemployment and low inflation with a likely consecutive rate cut, rather than adhering to the Fed’s hold position.
• Key data to watch include the flash PMIs, US GDP for Q2, and core PCE inflation for June.

• In face of the recent speeches by several FOMC members, we are changing or non-consensus view of no rate cut this year to one rate cut in September
• Under rate cuts, several asset classes such as real estate stocks, gold, and other safe haven currencies will rise.
• However, we still believe there will not be continuous series of rate cuts in the remainder of this year such that various asset classes listed above will only rise modestly. 

• To assess US equity direction before rate cut, we must first forecast the next rate cut. Our house forecasts that there will only be one rate cut during 2024.
• We believe S&P500, after hitting all-time high this week is due a 10% correction until the rate cut in September. Rate cuts are essential for S&P500 to tread new high. 
• But we believe the rate cut is going to be one-off as the labor market remains bullish and inflation still comes off a tad higher than the Fed target.

• US crude oil inventories fell by 4.9 million barrels in the week ending 12/Jul, marking the third consecutive weekly decline.
• As of 12/Jul, US natural gas inventories were up 8.4% YoY and 16.9% above the 5-year seasonal average.
• UBS expects Chevron’s Q2 earnings to fall short of expectations due to LNG project downtime and lower international refining margins.

• Good evening from Europe! The quarterly refunding announcement is due on July 29, and it always holds the potential to spook duration markets and liquidity betas.
• The release of the updated budget projections from the CBO in June garnered attention as they raised their budget deficit projections by around $400 billion compared to the winter projections in February.
• Not all of these outlays are newsworthy for the US Treasury.

• BYD / In Depth: Tesla’s Chinese rival hits accelerator on smart driving
• Fraud /: Fugitive Chinese billionaire Guo Wengui convicted in United States
• Bonuses /: Mainland financial firms’ Hong Kong units tell staff to repay bonuses

• My hybrid G3 nowcasting framework harnesses varied inputs from US, Euro Area (both through June) and Japan (mostly through May)
• Although 2Q 2024 headline GDP growth for the G3 overall is tracking better, 3Q might be soggier   
• The individual nowcasts imply prospective upside risk for Japan in the near-term, and perhaps emerging downside risk for the US and Euro Area in the offing

• The ECB unanimously held its policy rates in July, as widely expected after June’s cut, and refused to pre-commit to any outcome in September.
• Its policy will depend on the data in the weeks and months ahead, with some policymakers likely to firm up their positions before September’s highlighted meeting.
• We still expect another cut in September, encouraged by the Fed and BoE also easing policy. However, their premature steps could swiftly require reversals in 2025.

• The UK unemployment rate remained at 4.4% in May as the H1 increases are grinding to a halt in a similar pattern to 2023. Underlying changes are also becoming more neutral.
• Weekly vacancies data have rebounded to March levels while redundancies remain low and monthly pay growth is consistently annualising above 5%.
• The dovish BoE can welcome a renewed slowing in the headline wage growth rate despite current levels remaining inconsistent with the inflation target.

• The ECB kept key interest rates unchanged in July, following June’s rate cuts, to manage persistent inflationary pressures while supporting economic recovery.
• Future interest rate decisions will be data-driven and flexible, avoiding pre-commitments to specific rate paths and based on ongoing assessments of inflation, economic data, and monetary policy transmission.
• Economic and financial risks, including geopolitical tensions and global trade dynamics, will influence the ECB’s policy adjustments to ensure the stability and effectiveness of monetary policy transmission.

• We’ve received loads of feedback from our clients regarding our Trump versus Biden basket.
• As a result, we will provide a detailed breakdown of both baskets and explain the rationale behind each.
• We are updating the baskets regularly based on the political proposals of the two candidates.

• We cover the Trump assassination attempt in other spaces, so in this we’ll focus on the political fallout and touch upon other relevant topics, including the Chinese Policy Plenary.
• Firstly some thought on Trump picking J.D. Vance as his running mate.
• As a staunch Trump supporter, Vance represents a more grassroots, anti-establishment figure compared to others like Nikki Haley.

• Recent changes in Canada’s M&A rules have restricted critical metal companies from selling to Chinese investors
• Chinese investors have played a key role in funding the exploration and development of copper porphyries, which are vital for global production
• The uncertainty caused by these rules may lead companies to relocate outside of Canada, potentially harming the country’s mining industry and economy

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

• In the short-term, meaningful policy reforms needed out of the Third Plenum
• Chinese data continues to be lacklustre as expected while markets tread water
• What can we expect from the Third Plenum to galvanise the next stage

• Greetings from Copenhagen! Alas, it seems like there are quite a few bears out there who have been infected with recession vibes, thus the doctor has ordered some medicine for the patients which we’ll gladly provide to the likes of Jan Hatzius et. al..
• Firstly, the Dallas Fed’s Weekly Economic Index is at its highest since early 2022 and far far away from anything that smells like recession.
• Real GDP y/y should stay above 2% and the WEI is currently hinting at 3% real GDP growth.

• Hello everyone, and welcome back to our weekly positioning watch.
• The debates about whether the US is heading for a recession are still touring the charts, as the labor market and other economic data soften back towards pre-pandemic levels.
• However, while some might be uncomfortable watching the US economy slow more than anticipated, the lack of ringing alarm bells and Powell’s recent victory lap on inflation have greenlighted markets to price in a soft landing as a 95-99% probability event by now when looking across positioning data.

• The final EA inflation print confirmed the flash at 2.52% in June, with services refusing to slow from 4.1%. Median inflation rates broadly rebounded, stabilising the 3mma.
• Divergences between member states’ underlying pressures are balancing slightly above a target-consistent pace. The ECB is unlikely to be concerned about that.
• Stability in the ECB’s medium-term forecast seems sufficient for it to cut again in September. Tight labour markets may yet renew pressures and pause cuts later.

• UK inflation was broadly unchanged and close to expectations in June, although resilient services price strength was offset by temporary weakness in goods again.
• Seasonal goods discounting is unsustainable disinflation. Underlying pressures remain too high, and their persistence keeps raising consensus forecasts.
• An August BoE rate cut remains most likely, albeit less than before. It can point to the headline rate matching its forecast and lean on its expectation that things will improve.

• Bank Indonesia kept its policy at 6.25%, aligning with market expectations to ensure inflation control and Rupiah stabilization amid ongoing global financial uncertainties.
• Future interest rate decisions will be influenced by persistent global financial market uncertainty, particularly the US monetary policy direction, and strong domestic economic growth driven by robust consumption and investment.
• Ensuring Rupiah stability and maintaining inflation within the 2.5 ± 1% target range remain central to Bank Indonesia’s strategy, supported by a mix of pro-market monetary operations, macroprudential policies, and digitalization efforts to foster economic resilience and growth.

• China’s National Bureau of Statistics on Monday said the country’s second-quarter GDP rose by 4.7%.
• That’s slower than the 5.3% year-on-year GDP increase in the first quarter, and misses the 5.1% expectation.
• Retail sales for June missed expectations, while industrial production figures beat.

• Following the iron ore rally at the start of the month, prices have corrected sharply lower owing to downbeat economic data and an inventory buildup.
• Option activity over the past week was notably skewed towards put options suggesting a negative sentiment. Weekly options volume was sharply lower WoW.
• Recent bearish sentiment has been accompanied by a decline in IV. Outcome from the plenary meeting is likely to reignite volatility in the coming weeks.

• China State Construction International and Sinopec Engineering have short term reversal patterns indicating profit taking from recent advances.
• China Resources Cement reverses downtrend with volume indicating some near term gains after reporting that 1st half profit was under pressure.
• Yum China continues to show downward pressure given the increasing competition in the retail food segment, while Nongfu Spring collapses on news about the safety of its products.

• Average active fund returns of 6.75% match the iShares Asia Ex-Japan benchmark, with 50.8% of funds outperforming.
• Technology Sector Again Drives Returns: Taiwan Technology contributes the most to absolute returns, aided by China & HK and India positions.
• Key Stock Overweights Pay Off: Overweights in SK Hynix, Tencent Holdings and HDFC Bank helped offset the drag from Cash holdings over the quarter.

• Average active fund returns of 3.91% fail to beat the iShares MSCI EM ETF return of 4.39%, with 54% of funds underperforming.
• Consensus overweights in Brazil, Mexico and Indonesia proved costly, though Materials underweights, Saudi underweights and strong stock selection in South Korea stemmed relative losses.
• Tencent and TSMC underweights costly: Both stocks are among the top underweights among active GEM investors. Strong performance this quarter contributed to underperformance.

• Korean stock market ranked #1 in net inflow of foreign funds among emerging Asian countries so far in 2024.
• There has been a net inflow of US$19.4 billion into Korea this year, more than the inflow into China (US$4.9 billion), Taiwan (US$3.6 billion), and India (US$2.0 billion) combined. 
• Three major factors impacting higher foreign capital inflow into Korean stock market this year included Corporate Value Up program, turnaround of DRAM/semiconductor sector, and political uncertainties in China and India. 

• Goods export growth of 4.6%YoY was outpaced by import growth of 7.8%YoY (Apr-Jun’24), widening the merchandise deficit by 13.5%YoY. This was partly offset by the Apr-May24 services surplus widening 16.5%YoY. 
• In Q4FY24 (Jan-Mar’24), India had a current account surplus (0.6% of GDP) as the merchandise deficit of USD50.3bn was offset by a USD42.7bn services surplus and USD13.9bn incomes surplus.
• With oil prices remaining subdued (USD75-90/bbl), goods exports and the services surplus expanding, India is likely to report a current account surplus of 0.5% of GDP in FY25. 

• The BoE’s gilt holdings and sales are creating fiscal costs that are unnecessarily large. Restoring the proper separation between the BoE, HMT, and DMO would help.
• Swapping the BoE’s gilt portfolio for T-Bills with the Debt Management Account would break undesirable linkages and avoid crystalising mark-to-market losses to the deficit.
• Borrowing would be about £10bn per year less, creating welcome fiscal space and the political victory of clearing up a costly Conservative mess of institutions Labour set up.

• Strong American harvest driving downward pressure on Wheat, likely to offset reductions in EU and Russia.
• Corn saw modest recovery, driven by muted ending stocks, below trade estimate, but the harvest is going to be the third largest ever.
• US soybean production remains muted, in line with the Acreage report, and led to moderate recovery in early trading on Friday, but bearish sentiment persists.

• This week we look at the changing dynamics behind Southeast Asia’s e-commerce landscape as TikTok effectively moves into second place but the dynamics can change rapidly as it restructures Tokopedia. 
• We also look at Vinfast as it delays its US factory launch until 2028 versus 2025 due to slower EV sales and we examine the Grab & Trans-cab situation. 
• CrossASEAN Ground Zero is a thematic weekly product that focuses on key Southeast Asian themes and technology trends with a core focus on Indonesia.

• Happy Sunday from Copenhagen after the atrocious assassination attempt in Pennsylvania late Saturday.
• Trump was apparently struck by some fragments but managed to raise his fist and greet his supporters in a strong show of defiance as he was escorted off the stage.
• This incident will undoubtedly dominate the campaign in the coming days and weeks, transforming his appearance at the upcoming Republican Convention into a near-messianic event.

• Morning from Europe! Remember that we release our “Week at a glance” publication instead of the “Something for your Espresso” every Monday before lunch-time.
• Our aim is to digest the release calendar in an actionable way and assess the risk/reward around the macro themes in the context of the economic release calendar.
• This week, we will focus on the US consumer (Retail Sales), UK inflation (CPI) and the EUR rates (ECB meeting).

• The past week saw Insights on Delfi Ltd (DELFI SP), Second Chance Properties (SCE SP), Jollibee Foods (JFC PM, and Vietcombank.    
• There were also macro insights on Indonesia from both Prasenjit K. Basu and Manu Bhaskaran on Indonesia together with commentary on Malaysia macro and Lippo Karawaci‘s Fitch Downgrade.
• 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 Opec secretariat has made a bullish July forecast for oil demand, which deviates from the industry’s near-consensus.
• The industry’s consensus is more aligned with the International Energy Agency’s assessment.
• Given this, the recent increase in the price of Brent crude should be approached with caution.

• European financial markets have been remarkably calm in the wake of political upheaval, particularly in France. Continued weak potential GDP growth lays the foundations for capital migration to the US.
• US political turbulence has not unnerved financial markets, despite inflationary implications of President Trump’s agenda. High retail investor participation in the rally in US equities is sending a warning signal.
• US equities are priced to perfection in absolute valuation and relative to inflation. Secular valuations appear rich relative to history, suggesting a period of consolidation would be a welcome development. 

• Due 16 July, US June retail sale is expected to see a weak end to Q2 from US retail sales, with a 0.6% decline, and a 0.3% decline ex autos.
• Industry data suggests a significant dip in auto sales though trend in autos continues to have no clear direction. Gasoline prices look set to restrain sales values.
• June retail sales seems set to convey an end to economic prosperity and will be sending signal of an upcoming economic down turn.

• Takeaways: Copper diverging from its fundamentals – we continue to hold a bearish outlook as prices and positioning appear disconnected from macro variables
• Inventories in the US are building
• Shipping lanes are easing, and our Trump basket gives you the green light to continue in crude et. al. 

• US oil and gas rig count fell by 1 to 584 for the week ending 12/Jul, after rising by 4 the previous week. 
• US oil rig count fell by 1 to 478, indicating 59 fewer oil rigs as compared to the same week last year. It is at its lowest since December 2021.
• Despite a decline in the US oil rig count, US crude oil production matched the all-time high production of 13.3m bpd for the week ending 5/Jul, according to the EIA.

• BHP and Lundin rumored to be considering a joint bid for Filo Mining in the Vicuna district, an emerging copper super district in Chile and Argentina.
• Lundin Mining owns the most advanced project, Jose Maria, in the region which is permitted and fid ready.
• Argentina now has a supportive business regime, making it an optimal time for development in the region. Lundin Group retains a 33% stake in Filo while BHP owns a 6% stake.

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

• Even if it is premature to proclaim the death of manufacturing-led growth, the strategy that drove the success of the East Asian miracles may no longer be easily replicated. 
• The services sector has several advantages such as a large degree of labour absorption and continued momentum in international trade. But there are other limitations. 
• There is little need to place all of a country’s eggs in a single industry’s basket; the menu of policies that are beneficial to both is not a short one. 

• Negative real interest rate had been associated with booming residential property prices in Hong Kong from 2008 to 2021 
• However the party is over as Hong Kong interest rate moves up following ups in Fed Fund Rate due to Linked Exchange Rate System.
• Residential prices rise 250% during the negative real interest rate period of 2008 to 2021, and are down 22.5% immediately during the real interest rate hike in 2022 to 2023.

• A review of recent events impacting our investment themes or outlook
• Japan perks up as machine tool orders rise y/y for the first time in nearly 19 months
• US Interest Rate cut expectations rise to a “sure thing” in September

• Valuation and breadth indicators are flashing concerning signs of excesses. We believe this market bull has more room to run.
• If this is a market bubble, valuations are stretched but not bubbly.
• Price and fundamental momentum are strong, and we are not seeing signs of distribution.

• Our base-case scenario is based on an analysis of current market conditions and seasonal patterns of a near-term top in July and sideways consolidation for the remainder of the month.
• Expect a rally in August, which could be consistent with an anticipation of a September rate cut in the wake of the July 31 FOMC meeting and Jackson Hole speeches.
• Volatility and risk should rise into the November election, followed by a post-electoral rally into year-end.

• In May, industrial activity grew 0.7% MoM, driven by mining and construction.
• Unlike what happened at the beginning of the year, government projects are no longer the driving force of construction, but rather private sector construction.
• In May, industrial production reversed the decline seen in April (-0.4% MoM), growing 0.7% MoM.

• What a week in markets after the uber-dovish inflation print yesterday, which saw huge rotation within the equity markets as well as action in both FX and commodities.
• In the equity space, we saw the biggest outperformance of the Russell 2000 against the Nasdaq since early 2021.
• Yesterday’s rotation was driven by hedge funds facing a short squeeze on their small-cap and RE hedges as yields came down.

• China’s Jun export rises by 8.6% year-on-year, above the consensus 8.0% and breaking 15-month new high.
• We believe the trade figures in June is no point for the economy to cheer up, despite good export number.
• The decline in imports by 2.3%yoy shows that the local consumption upgrade plan is not working well and the economy reverts to the reliance on exports again to sustain growth.

• The inflation report provides a surprisingly soft set of data, aligning perfectly with the FOMC’s hopes, but not with their predictions.
• Back in June, the FOMC projected only one rate cut while hiking the inflation forecast to levels that now seem feasible to undershoot.
• This report, as soft as it gets, shows transportation services down by 0.5% for the month, and shelter prices have only increased by 0.17% MoM.

• While we are waiting for Godot and US inflation, we have examined the liquidity outlook for the remainder of the year.
• The important part of the analysis is to understand why liquidity is moving, not just if it is moving.
• Depending on the type of liquidity additions/withdrawals, the quality of the liquidity signal improves/worsens as a driver of asset markets.

• AI / In Depth: Are AI-powered learning gadgets ready to be at the head of the class?
• Food safety /: Processing firm says it is a ‘victim’ of contaminated cooking oil scandal
• Property /Land:  sales slashed by more than a third in first half of 2024 as real estate slump bites

• China authorities appear to have the financial stability spill over from the property sector , through a combination of direct support for housing and forced mergers of weak banks. 
• This game plan will likely be followed for the next few years. However, this all means residential property investment will be an economic headwind to growth for years to come. 
• Problems will remain multi year and will hangover weaker developers/LGFV’s/banks and non-banks.

• Voters are clear about their rejection of Rassemblement National in France, and central bankers are anticipating rate cuts in September (Fed and ECB) and August (BoE).
• The upcoming ECB meeting is expected to confirm this anticipated step without making a commitment, after considering the final HICP print.
• The UK’s inflation and labour market data are the most crucial factors to inform the decision in August, following June’s finely balanced decision.

• Welcome to this short labor market watch on the back of this week’s NFIB and CPI numbers.
• Currently the labor market has softened considerably from tight conditions in 2022, yet there is still some time before this slowdown potentially leads to a recession.
• From the NFIB numbers we already got more hints of the deflationary trends suggested by this month’s CPI report as price plans continue their decrease.

• US CPI inflation for June 2024 is 2.97% y-o-y, which is below the consensus and shows successfully moderating inflationary pressures.
• Core inflation is higher at 3.3%, but the monthly impulse has reassuringly slowed to 0.1%.
• Mixed PPI trends indicate some price pressures persist, but the Fed is increasingly likely to cut in September.

• Yale Hirsch’s Presidential Election Cycle theory posits that US equities perform best in third year followed by the election year. Equities are weakest in the year following the election.
• Over 6 decades, the S&P500 delivered positive returns in thirteen of sixteen election years. On average, the index returned 4.1% during 1H followed by 3.2% in 2H.
• Forget this theory, markets are pricing an 88% chance of rates being slashed starting Sep. Citi analysts expect 200bps of cuts over 8 meetings. Euphoric markets will go on steroids.

• Rise in US interest rate was widely deemed a catalyst for the Asian Financial Crisis (1997-1998). 
• So as US interest rate has remained moderately high in recent years, it makes people ponder the chance for another financial crisis in EMs.
• Most EMs that suffered from the Asian Financial Crisis have stronger fundamentals now and are salient according to the Greenspan-Guidotti Rule.

• Welcome to our weekly EM watch, which typically centers around developments in Asia and Latin America.
• We continue to see signs of Chinese efforts to balance global metals markets by exporting local excesses, while the export-sector driven growth in China limits the probability of major local fiscal stimulus to fuel domestic consumption.
• The softening of the USD side of the equation will likely leave local monetary authorities in a wait-and-see mode despite continued weakness in both CNY and JPY.

• Inverted yield curve used to predict stock market correction and economic recession.
• This relationship maybe losing as US is immersed in a long period of yield curve inversion, yet the economy and stock market thrive.
• ​The reason for the disappearing relation is multi-faceted, ranging from central bank policies to structural change of the economy.

• Stocks / In Depth: The key ingredients to sustain Hong Kong’s stock rally
• Power /Caixin Explains: Why China needs a new green power system and how it could work

• Kidnap /: Another case of kidnapped Chinese in Philippines emerges

• Another surprisingly strong GDP growth rate in May has extended output’s above-trend rise to the point where the H1 excess broadly matches the shortfall from H2 2023.
• Returning to trend would require flat output through Q3, but other indicators suggest growth is only slowing, not stalling, so that may be too pessimistic.
• Activity data do not signal policy as overly tight, although unemployment suggests it is a little tight. Nonetheless, rate cuts remain likely as policymakers look elsewhere.

• The Bank of Korea maintained the Policy Rate at 3.5%, consistent with the economic consensus, due to the need to confirm the continuation of slowing inflation trends and concerns over financial stability risks from exchange rate volatility and rising household debt.
• Global economic conditions, including differentiated monetary policies among major economies, geopolitical risks, and fluctuations in financial markets, will significantly influence future monetary policy decisions.
• Strong export performance and moderate growth are tempered by an uneven recovery in consumption and investment, alongside persistent financial stability concerns related to household debt and real estate project financing, guiding a cautious approach to future interest rate adjustments.

• Bank Negara Malaysia maintained the OPR at 3.00%, aligning with the economic consensus amid a cautious approach to managing inflation and supporting economic growth.
• Future interest rate policies will be influenced by global economic stability, the strength of the domestic tech upcycle, and the impact of domestic policy measures on subsidies and price controls.
• Inflation is expected to rise moderately in the second half of 2024 due to subsidy rationalization. Still, overall pressures are mitigated by targeted measures to support businesses, with headline and core inflation projected to average between 2.0% – 3.5% and 2.0% – 3.0%, respectively.

• US market tanks on Thursday and we suffer heavy losses for our long call position on a few tech giants.
• Small stocks thrive as chances of rate cuts increase, though we hold onto our non-consensus view of no Fed rate cut this year.
• Hong Kong market would likely move sideway between 16000 to 18000 levels.