Macro

• The FED FOMC ended on Thursday and most analysts predict two to three rate cuts this year, while we forecast there will only be an one off rate cut.
• Our forecast already incorporate the nil prediction we were aiming at earlier, since the FOMC members have leaked their intents towards more rate cut.
• But we are still affirmative that there will only be a one-off rate cut this September, as various currencies like JPY have rebounded visibly.

• Employers added just 114,000 jobs in July — 35% fewer than expected — and unemployment, now at 4.3%, is the highest since October 2021, the Labor Department reported Friday.
• Hourly wages rose just 3.6% from July 2023, the smallest year-over-year gain since May 2021, and another sign that inflation could be heading closer to the Fed’s target.
• July job gains were concentrated in healthcare and social assistance firms, which added 64,000 jobs last month, accounting for 56% of hiring. Restaurants, hotels and bars added nearly 26,000 jobs.

• Welcome to our Weekly EM editorial.
• In light of a likely Fed cutting cycle commencing in September, we will analyze why this cycle is anything but ordinary and how the EM price cycle may disrupt standard playbooks on trading a US cutting cycle.
• Key Takeaways: Gold is likely to perform (much) worse than during a typical Fed cutting cycle. China is actively trying to cool down the gold market. The EM inflation cycle is indicative of what’s upcoming in DM markets into 2025. The Copper to Gold ratio is a screaming “buy” given this context.

• Markets are currently busy preparing for the upcoming cutting cycle from the Fed, expected to start in September.
• The simple playbook is often used when markets face a “high probability event,” and markets are now acting as if they know what’s ahead.
• A Fed cutting cycle is triggered by a recession; therefore, buy bonds, sell risk assets, and buy gold, etc.

• Trucks /In Depth: As sales surge, electric trucks could be here for the long haul
• Drones /: China adds drone components with military applications to export blacklist
• PMI /: China’s manufacturing shrinks for first time in nine months as demand falls, Caixin PMI shows

• JPY has gained momentum since prospect of Fed rate cut rises and BOJ raised interest rate.
• Yen has depreciated by 32% over the past 4 years. As dollar/yen strengthens to over 150, we believe Yen will recover to 110 level as US Treasury Yields move lower.
• As US yields lower, the USD bond held by BOJ will move higher and Bank of Japan will be forced to sell USD bond and USD to rebalance their portfolio.

• There was a significant policy divergence over the past week, with the Bank of England cutting rates, the Bank of Japan hiking rates, and the Federal Reserve subtly indicating a potential rate hike in September. Euro Area inflation also increased, which was unexpected, but was in line with our forecast.
• Despite upcoming decisions from the Reserve Bank of Australia, Mexico and Peru, macro events may not be the focus next week due to a lack of data releases on the calendar.
• There will be a flurry of data releases from the UK in the middle of the following week, and an updated monthly publication will be released.

• This insight is a book review of 주식투자절대원칙 (Absolute Principles of Stock Investment), which was written by a famous Korean retail investor called Park Young-Ok.
• Park tries to capture his 30+ years of investing wisdom. I thought this book was excellent, especially because Park included a lot of local flavor of his mindset in investing. 
• This insight provides 11 major highlights of the book ‘Absolute Principles of Stock Investment.’

• US crude inventories fell for the fifth consecutive week by 3.4 mb, exceeding the 1.6 mb decline expected by analysts. Gasoline stocks also decreased by 3.7 mb.
• As of the week ending 26/Jul, US natural gas inventories were up 8.4% YoY and 15.7% above the 5-year seasonal average.
• European oil majors beat Q2 profit estimates. BP’s Q2 underlying net profit beat estimates by 7.7%. Shell’s Q2 EPS beat estimates by 5.1%. 

• Champion Iron Ore, also known as Champ, is a premium producer in the iron ore sector with potential for increased attention over time.
• Adriatic Metals is ramping up production at their Vares silver-zinc polymetallic deposit in Bosnia, but facing challenges with cash flow and development rates.
• Cash flow issues, teething problems with mining services, and logistical challenges are hindering Adriatic’s ramp up, but they are on track to reach their nameplate by Q4.

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

• The BoE cut by 25bp to 5.0%, as we expected, but still provided dovish news as the decision was finely balanced for and between MPC members, the consensus and pricing.
• Confidence in the forecast increased enough for a rate cut, yet risks now skew to the upside from persistently high wage inflation. It is noncommittal about cutting again.
• We still expect another cut in November before pausing amid excessive wage growth. That modal call could invert to rate hikes if the Fed also cuts prematurely.

• Market sentiment improved as the prospect of a September Fed pivot increased following the July FOMC meeting
• While the July FOMC statement and Chair Powell’s presser hinted toward a rate cut, the former seems more ambivalent than the latter 
• Although the current focus is squarely on the timing of the first rate cut, the future path of policy remains unclear at this time

• FOMC held rates steady at 5.25-5.5%, but emphasized that “a reduction could be on the table…in September”. From inflation risks alone, the FOMC statement shifted focus to its dual mandate.  
• 0.9%YoY M2 growth (Jun’24) evidences restrictive monetary conditions. Withdrawing QT after Aug’23 led to Jan-Apr’24 shocks in MoM core PCE, but latter now reined-in by resumed QT since Mar’24.
• Core PCE inflation likely to wane to 2.3%YoY by Sep’24, enabling rates to decline 25bp at each of the next 3 FOMC meetings, ignoring political threats regarding the Sep’24 cut.

• Temu / In Depth: ‘Exorbitant’ fines land Temu in hot water with Chinese merchants
• Politburo /: Politburo promises new measures to tackle local debt risks and clear economic hurdles
• Regulators /: China securities regulator names law enforcement chief as vice chairman

• Supermarket 2Q24 results were overall mixed vs our estimates, with sales decelerating amid mostly calendar headwinds, and La Comer posting the best SSS and sales performance; all of our 3 covered players still beat the industry and thus continue to gain market share, as expected.
• In terms of profitability, the 3 companies were able to post solid gross margin expansion amid efficiencies and product mix, yet SG&A pressure, amid higher labor expenses, offset most of this pressure as expected; Chedraui was the only player able to post a slight EBITDA margin expansion.
• Having recently launched our Supermarkets coverage (link to report here), we continue to see Chedraui (Outperform, P$160 PT) as the best positioned supermarket for either consumer trade up or trade down, as well as with a healthy format and geographical diversification.

• Remittances: In June, USD 6.2 billion in remittances came to the country, the highest numbers for a single month, reinforcing its role as the main source of net dollars into the country.
• The accumulated flow in the year increased to USD 31.3 billion, 3.6% more than observed in the same period of 2023.
• Remittances have increased at both extensive and intensive levels.

• Concentration of debt, asset prices, and fiscal deficit will determine the tipping point of China’s debt. 
• If China does not continue to work on debt de-concentration, prop up its asset prices, or rein in fiscal deficit, China may as well face a debt crisis.
• To examine the conditions for China’s debt situation, it is vital to look at three key indicators of debt sustainability: concentration of debt, currency stability, and fiscal budget.

• Markets remain focused on 2-3 rate cuts from the Fed, growth not rolling over fully, and inflation continuing its downward trajectory.
• There seems to be no way to change this narrative among market participants.
• The slightly hawkish PCE in the US and today’s relatively high German inflation print (in harmonized terms) had a hard time moving rates markets, which are currently pricing more than 2.5 cuts from the Fed and more than 2 cuts from the ECB by year-end, with Fed September pricing even showing a tiny lean towards 50 bps.

• The energy, materials and tech sectors have lost momentum, while telecoms and utilities sectors lead the market.  Consumer sectors are lagging.  HSCI has dipped below its 200 day moving average.
• Hong Kong & China Gas (3 HK) breaks to the upside as investors seek safety and yield.  
• PetroChina (857 HK) has broken down relative to the MSCI China index and Travelsky Technology Ltd H (696 HK) breaks down from a triangle formation  but downside is limited.

• Weakness Persists: Iron ore prices hovered at critical support level of $100/ton on consistent ample supply & weak demand driven by China’s slowing manufacturing sector.
• Options Market Shift: Despite overall bearish sentiment, the options market showed increased call activity, particularly for front-month expiries, indicating potential short-term bullish speculation.
• Production & Supply Outlook: Major producers like Vale & Rio Tinto are expected to increase iron ore output, contributing to a bearish outlook due to ample supply in global markets.

• Welcome to this week’s Great Game, where we try to assess the market risks of current geopolitical events.
• This week – Israel-Hezbollah and Venezuela!
• Once again, we’re discussing a potential widening of the Israel-Gaza conflict as missiles and drones are exchanged between Israel and Hezbollah in Lebanon.

• The FOMC statement made fairly subtle changes to the language on inflation, with more significant dovish shifts made in the language on employment.
• Fed is not willing to signal that a September easing is a done deal. However the tone of Jerome Powell’s press conference was generally optimistic, suggesting a likely September move.
• Our house believe that there will be an one-off rate cut in September but unlikely a series of rate cuts in coming months, as inflation and employment are easily aroused.

• The BOJ raised its policy rate by 15 basis points to 0.25%, contrary to consensus expectations, signalling a proactive stance in addressing inflationary pressures while supporting economic recovery.
• Future interest rate decisions will be influenced by global economic developments, domestic economic indicators, inflation trends, financial market stability, and the impact of government economic measures.
• The BOJ’s strategy focuses on gradual policy normalization, with a cautious approach to reducing JGB purchases and raising interest rates, ensuring sustained economic growth and stable inflation.

• The FOMC has maintained the federal funds rate at 5.25-5.5% in response to moderated economic growth and a stable yet adjusting labour market, indicating a cautious approach to policy normalization while acknowledging ongoing economic resilience.
• Despite easing from previous highs, inflation remains above the desired 2% threshold, prompting continued vigilance from the FOMC. The Committee’s policy stance is designed to ensure inflation progresses sustainably towards the target, supported by well-anchored long-term expectations.
• The FOMC emphasizes a flexible, data-driven approach to future rate decisions, prepared to adapt monetary policy as required based on comprehensive assessments of inflation dynamics, labour market conditions, and overall economic performance.

• What implications does the recent trend of growth stocks significantly outperforming value stocks have for investors?
• The famous economist Eugene Fama’s Three-Factor Model mentions that small-cap stocks will outperform large-cap stocks and value stocks will outperform growth stocks in the long run.
• However, looking at the performance of the U.S. stock market, in recent years, not only large-cap stocks have significantly outperformed small-cap stocks, but growth stocks have also  outperformed value stocks.

• Monetary / Caixin Explains: Why and how China’s overhauling monetary policy (Part 1)
• Flights /: Olympics Games boost air travel between China and France
• Property /: China must resolve real estate crisis and not rely on exports alone, expert warns

• Fed is expected to start easing cycle in September, potentially leading to a bullish trend for gold and silver
• Structural factors such as US fiscal deficit concerns, central bank reserve diversification, and geopolitical risks could continue to support gold prices
• Chinese physical gold demand has cooled, but other factors like western ETF demand and potential Indian import duty reduction may provide support for gold prices

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

• China could be the disinflationistas big hope from here. The export price index is not yet picking up in China despite some signs of early increases.
• The potential re-inflation story will likely be forewarned in the Chinese PPI again. There are some early signs of improvement in Shipping to be seen.
• The bottom-line is that we are still playing the metals space from the short side, while we don’t hold any energy longs despite it being increasingly attractive from a risk/reward perspective.

• We are likely approaching the point where the squaring party triggered by USDJPY is starting to impact market pricing and sentiment in nonsensical ways, as deleveraging is ongoing, even if the dust has settled a little.
• Markets are pricing a small “insurance premium” for the September FOMC meeting, leaving more than 25bp in the forward pricing despite a week of mostly hawkish surprises last week.
• Everything this week is about watching USDJPY price action again, as it has the potential to impact all assets.

• Despite setbacks in manufacturing and exports, Singapore’s cyclical position is likely to stabilize on the back of improved investment flows and easing inflation. 
• This has allowed the monetary policy to keep its policy settings unchanged as it maintains a “wait-and-see” stance pending external developments. 
• Policymakers will thus focus on long-term economic strategies to bolster competitiveness and resilience, including finalizing the upcoming Singapore-Johor special economic zone. 

• Historical analysis suggests that previous lows in yen or highs in dollar yen may be difficult to recapture after significant technical damage.
• The yen strength is influenced by wide US minus Japan real policy rate differentials, skewing historical results in a more yen bearish direction.
• Expectations for the upcoming BOJ meeting include a 15 basis point rate hike and a halving of bond purchases, leading to dispersion of views among investors on the timing of rate hikes.

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

• A lack of institutional investor interest in Hong Kong is a positive for once as the market is less influenced by international flows
• Investors are disappointed by the lack of short-term stimulus plans after the Third Plenum session
• What to do after the 17,500 level breached on the Hang Seng index?

• Having suffered a setback in the 2024 Lok Sabha elections, the government used the Union Budget to address voters’ economic gripes while keeping coalition partners happy.   
• While it is positive that the government did not resort to populist giveaways in reaction to the election results, robust growth could have enabled a faster pace of consolidation.
• The focus on encouraging first-time hiring is welcome, but cuts in education and health spending suggest a lack of a coherent strategy to improve human capital. 

• Real GDP accelerated to 2.8%QoQsaar growth in Q2CY24 (from 1.4% in Q1), with sharp QoQ acceleration in PCE, investment and government spending, and restocking after three quarters of destocking. 
• In YoY terms, real GDP grew 3.1%YoY in Q2CY24 led by 5.8%YoY growth in gross investment. Core PCE inflation edged up to 2.63% YoY in Jun’24 (from May’s 2.62%YoY). 
• The annualized rise in core PCE in H1CY24 was 3.33%, with only one month (May’24) of less than 2%MoM (annualized) increase — insufficient to allow a rate cut before Sep’24. 

• Euro area GDP growth remained at 0.3% q-o-q in Q2, defying expectations for it to slow like the surveys. Germany’s surprise fall may disappear as actuals replace estimates.
• Sustaining something close to potential growth without a shallow recession to recover suggests cyclical pressures are stable, like the unemployment rate.
• Effective monetary conditions do not currently look tight in the Euro area. Rate cuts to offset belated passthrough are inherently more limited and at risk of reversal.

• SEC’s approval of nine spot ETH ETFs on 23/July led to an unexpected 9% price drop in ETH, marking a “sell-the-news” event.
• Dominant outflows from Grayscale Ethereum Trust, totaling -1,723.5 net flows, significantly impacted market dynamics, overshadowing inflows into other ETFs and contributing to selling pressure.
• Changes in options market post-ETF launch saw put implied volatility increase and call volatility decrease, indicating a shift toward defensive trading strategies.

• Happy Sunday from Copenhagen! My apologies for the slightly later release of the Steno Signals Sunday editorial.
• We are in the process of moving, making Sundays a work-at-home day instead of a woke-from-home day!It’s been a tricky few weeks for high-beta risk assets, and with high-level voices such as Bill Dudley calling for imminent rate cuts, we are at the stage of the cycle where many people are getting scared of the equity/high-beta momentum.
• It is admittedly true that “cyclicals” have front-run a re-ignition of economic momentum to an extent that speaks in favor of a rotation in equity markets.

• US oil and gas rig count increased by three to 589 for the week ending 26/Jul, rising for the second consecutive week.
• US oil rig count rose by 5 to 482, marking the first increase since May. Gas rigs fell by 2 to 101, following a rise of 3 the previous week.
• In July, the total US rig count increased by 8, the first monthly rise since February and the largest since November 2022.

• Commodity Popcorn Markets During the week, I saw a tweet by the legendary commodities trader Peter Brandt.
• The technical part of Kucrop Analytics institutional commodity research arm is heavily influenced by Peter Brands Research, as well as Larry Williams Research.

• Both look at markets very different and have a strong track record.

• The past week saw insights on Thai Beverage (THBEV SP),Matahari Department Store (LPPF IJ), Nippon Indosari Corpindo (ROTI IJ, Yeo Hiap Seng, and Sai Gon Cargo Service (SCS VN).
• There was also a macro insight on the Malaysian economy, an ESG-focused insight on Comfortdelgro Corp (CD SP) and an index rebalance on the LQ45.
• 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 new UK Chancellor has revealed a £22bn fiscal hole in plans for the current year. Only a quarter of that cost is loosely covered by freshly announced cuts.
• Over half of the cost reflects enormous public sector pay increases that the government chose to accept. Budget announcements on 30 October should pay for some of that.
• Looser fiscal policy and bumper pay settlements warrant relatively tighter monetary policy. However, the policy rate impact will prove more significant in 2025.

• The slowdown in China has become unmistakable. The initiatives announced after the Third Plenum did little to address the problems of a weak real estate market and local government debt.
• The effects of the Chinese slowdown are being felt mostly in non-U.S. equity markets. 
• We are downgrading our Trend Asset Allocation Model from bullish to neutral.

• The US election campaign has taken significant twists in recent weeks, culminating with the removal of President Biden. Wall Street cannot be ambivalent about who wins in November, unlike 2020.
• The People’s Bank of China (PBoC) has unexpectedly lowered key lending rates, following disappointing Q2 economic growth. More aggressive interest rate cuts could happen once the Fed begins easing policy.  
• Exchange rate movements in Q4 could be key to diffusing protectionist sentiment against China. Easier monetary policy in Europe and the US will force the PBoC to support China’s exporters.

• U.S. equity investors saw a sudden and violent rotation from growth to value stocks and from large to small caps. The risk unwind is also evident in the currency markets.
• In the short run, some of our short-term equity indicators are oversold and flashed buy signals.
• Our base-case scenario calls for a short-term relief equity rally into August, led by small caps and value stocks.

• Are we witnessing a short-term carry-trade unwind or a trend change?
• A short-term bounce in the USDJPY will provide an opportunity to reposition
• Industrial metals take the brunt of the unwind in the commodity sector

• By surprises on Monday, China cut the one-year Loan Prime Rate by 10 basis points to 3.35%,  while the five-year LPR was reduced by the same margin to 3.85%.
• Afterwards PBOC cuts its Medium Term Facility (MLF) on Thursday to 2.30%, down 20 basis points from its previous MLF loan, its largest cut since April 2020.
• The rate cuts this time carries more information than previous cuts as in the past, MLF changes usually precede rather than follow the LPR cuts.

• Starting 1 August, there will be several significant changes to the IPO book building and lockup results disclosure polices in Korea. 
• When conducting the comps analysis for IPOs, if there are competing companies that are excluded, then the companies need to provide more detailed reasons as to why they are excluded.
• The new, stringent IPO rules are likely to bring about a greater scrutiny on the IPO valuations of newly listed companies in Korea. 

• Welcome to the weekly Positioning Watch, where we assess the past week’s performance of our portfolio.
• We have generally navigated a tricky week well, thanks to material gains from our metals shorts.
• However, we are admittedly a bit surprised by the lack of response in the rates space to what appears to be a still-resilient US economy.

• US June’s personal income and spending came in little surprise. Q2 income surprised on the downside but spending and PCE prices surprised on the upside.
• June’s core PCE price index rose by 0.2% which is in line with expectations and treaded lower, but still stronger than the June core CPI at 0.1%.
• May core PCE prices remain at 0.1% underperforming a 0.2% May core CPI but the firmer were revised up to 0.13% from 0.08%.

• Japanese Market: Yen strengthens, impacting stocks like Nissan with poor earnings due to weak overseas profit translation.

• US Market: Weakening labor signals suggest possible September interest rate cuts; current economic policies may be behind the curve.

• Global Economy: China boosts demand, India maintains fiscal policy, Korea’s GDP growth and investment stagnate.

• Markets at one point began to anticipate a risk of more than a 25 bps increase in September, and we have already seen early chatter about a rate cut from the Fed next week.
• This is the kind of “loss of composure” we see when position squaring takes precedence over common sense.
• We are likely approaching the point where the squaring party triggered by USDJPY is starting to impact market pricing and sentiment in nonsensical ways, as deleveraging is ongoing, even if the dust has settled a little this afternoon.

• Are we witnessing a short-term carry-trade unwind or trend change?
• JPY’s strength and overall market weakness continue to go hand in hand.
• Any near-term bounce  be used to reduce exposure in certain sectors

• US tech stocks correct quite heavily,  with S&P500 down for 2.6% and Nasdaq down for 3.7% up to Thursday this week.
• Hang Seng follows suit, declining for 2.6% for the week. However, we believe Hong Kong stocks are doomed a short-term recovery in coming weeks.
• After treading new high last Tuesday, gold has retreated from USD2467.8 to USD2409.4. Gold is still a long-term good investment as central banks are mounting gold position.

• Uncertainty over income and employment, adverse wealth effects from lower house prices, plus growing risk aversion, will likely mean that consumption continues to struggle.
• We forecast slower H2 GDP growth and look for 4% in 2025.
• Sluggish China retail sales/negative auto sales and price cuts for luxury goods suggest that China consumption is struggling.

• Debt /: China’s macro leverage ratio edges up to fresh record
• China-Ukraine /: China supports Russia-Ukraine peace talks, but conditions aren’t yet ‘ripe,’ Beijing says
• Borrowing /: China encourages ‘high quality’ companies to seek borrowing overseas

• Equity longs and FX carry trades are being unwound, indicating a general reduction of risk in consensus positions, unrelated to significant macro news or Trump’s trading.
• The US services PMI remains strong, suggesting a healthy service sector economy.
• Market repricing is expected to respond to policy changes next week, including a potential BOJ hike, a soft signal from the Fed regarding September, and a possible BoE rate cut, which could affect Yen strength and sterling long positions respectively.

• Sustainability and ESG investment has increasingly gained importance and has become not just a talking point
• Surprisingly, China is one of the most serious countries that care about ESG, even beating America and Europe in certain sustainability aspects.
• It is worthwhile to review UN’s 17 sustainability goals to see what each economy can do to to raise the hope of achieving them by 2030.

• On 25 July, the South Korean government announced that it plans to lower highest bracket inheritance taxes from 50% to 40%. 
• This is a significant move since excessively high inheritance taxes has been one of the key reasons for poor corporate governance in Korea. 
• A reduction in the highest bracket inheritance taxes from 50% to 40-45% is likely sometime in 4Q24 to 2025 which should help to improve corporate governance in Korea.

• Welcome to our weekly EM editorial, where we touch upon the most tradeable topics in liquid EM markets and how they interact with main themes in G10 markets.
• The overwhelming story centers around the position squaring party that has been triggered by the reversal of the carry trade in USDJPY.
• The real rate spread is no longer trending upwards, leaving the fair value lower than 150 now that the spec long positioning in USD versus JPY is getting squeezed.

• US crude inventories fell for the fourth straight week, with a 3.7 mb drawdown. Gasoline stocks dropped by 5.6 mb, the largest decline since March.
• As of 19/Jul, US natural gas inventories were up 8.4% YoY and 16.4% above the 5-year seasonal average.
• TotalEnergies’ Q2 revenue fell 5.2% YoY, missing estimates by 7.3%. EPS dropped 7.5% YoY and missed estimates by 7.2%.

• Welcome back to our weekly positioning update.
• It’s hard not to touch upon the recent moves in equities once again, with markets trying to digest whether it was the beginning of a broader outflow from large cap / tech into small cap stocks and indices like Russell 2000, or if it was simply a hiccup due to extended positioning and a profound fear that the cutting cycle was already fully priced in, leaving tiny room for extensive gains in large cap stocks, which were up >20% YTD before the CPI report.
• We provide 3 reasons as to why it was not a rotation below.

• The inflation rate for the first half of July stood at 0.71%, driven by increases in the prices of agricultural and energy products.
• However, core inflation continued its downward trend in annual terms, approaching 4.0%.
• This reinforces the expectation that the Board of Governors of Banxico will opt for a 25 basis points cut in the reference rate, in a decision that we anticipate will be divided.

• The Norwegian rates case is always interesting when we see significant moves in NOK, foreign rates, and energy prices.
• Norges Bank is in contrast to other central banks extremely structured/mechanical around their rate decisions and the upcoming policy bias can hence be tracked with a decent precision in real time.
• Here is a brief summary of the current status of the (semi)-mechanical adjustments to the rate path from June, given recent development.

• Take aways: As liquidity and growth improve so will equity markets.
• The RTY rotation story is not all rosy. Momentum suggests that we are not as concentrated in equity markets as we think
• Three weeks ago, when the dovish CPI print landed, the immediate reaction was a sell-off in large caps followed by an influx into small caps, with RTY rising >10% over the week following the release.