Macro

• U.S. household equity allocations are becoming extended relative to their own history, which warns of a challenging long-term return outlook.
• Demographically adjusted allocations are less extended and similar episodes have resolved in either minor pullbacks or sideways consolidations.
• Equity valuations are stretched compared to bonds and the long-term outlook will depend on the future advances in productivity.

• The global economic outlook for 2025 is mixed. Central bank policy rates will be lowered gradually and settle at an underlying level higher than what prevailed before the COVID-19 pandemic.
• While US markets are discounting a soft landing, financing conditions for corporations next year will be impacted by the magnitude of the slowdown and the prospective conduct of fiscal policy.
• Conditions in the Eurozone are expected to improve next year, while the outlook for refinancing activity in the Asia Pacific remains nuanced, courtesy of differing regional central bank policy outlooks.

• China’s trade is growing strongly and has become less dependent on the US.  The EU and Mexico now exceed China’s monthly exports to the US.
• Taiwan as a flashpoint between the US and China will decline in coming years as each country ramps up its semiconductor manufacturing capabilities.
• Tariffs and the Yuan will be important negotiating points between the US and China, but the good news is they will be talking.

• The tactical bullish set-up that we outlined last week has triggered a buy signal.
• Diverse leadership by financial, industrial and technology stocks points to further gains in stock prices.
• Investors should be aware of the key risk of earnings disappointment during Q3 earnings season, and signs of resurgent inflation that puts upward pressure on interest rates.

• After a brief spell of iron ore prices rising to 108 USD/ton, prices have retraced to 102 USD/ton (-3% WoW) but remain broadly in the 95-130 USD/ton band.
• Investors were disappointed with China’s announced stimulus measures, citing their vagueness and lack of a specific timetable, resulting in the positive sentiment waning over the last two weeks.
• We update investors on Vale’s (VALE US) recent proposal to the government to settle the Mariana Dam disaster.

• Copper prices were down slightly, WoW, by 0.3% YoY, as the effect of China’s stimulus plan announcements waned, with investors viewing them more skeptically.
• With 58% of the metal’s demand arising from China, we expect the short-term malaise to be felt unless China makes punchier fiscal stimulus announcements soon. 
• We believe high-quality equities like Southern Copper (SCCO US) and Ivanhoe Mines (IVN CN) will continue to be resilient and prefer exposure to copper in those names.

• The coalition government will announce its first Medium-Term Budget Policy Statement (MTBPS) in Parliament on October 30.
• It is anticipated to set government policy goals and priorities and forecast macroeconomic trajectory and the fiscal framework over the next three years.
• We continue to think the fiscal deficit in South Africa is projected to remain elevated contributing both to the GDP and inflation prospects, given rising debt service.

• OPEC cuts demand growth estimates for the third consecutive month, lowering its 2024 and 2025 forecasts by 4.9% and 5.7%, respectively, citing demand weakness in China.
• Total production of OPEC members obliged to implement supply cuts averaged 21.32m bpd in September, exceeding the target by 180k bpd.
• The EIA reduced its 2024 and 2025 oil price forecasts due to September’s sharp decline but expects prices to rise from current levels on declining oil inventories.

• As HK/China markets complete their retracements after the best rally in more than a decade, the exaggerated pessimism from the media and analysts returns.
• The government continues to roll out measures to relieve the pressure on the property market in what is a multi-year process with no quick fix.
• Even after a historic rally, the HSI still trades at a significant valuation discount which will narrow in the coming months.

• Requests for retraction in contracts by buyers 
• Oversupply of spot cargoes feeds pessimistic expectations

• For the week ending 11/Oct, US crude inventories decreased by 2.2m barrels, diverging from expectations of a 1.8m barrel build. Additionally, gasoline and distillate stockpiles also declined more than anticipated.
• US natural gas inventories rose 76 Bcf for the week ending 11/Oct, lower than analyst expectations of an 80 Bcf buildup. Inventories are 4.6% above the 5-year seasonal average.
• Halliburton, Schlumberger, and Occidental’s target prices were cut. Notably, analysts kept their Buy ratings on Reliance despite its net profit falling by 4.8% YoY.

• Q3 GDP and September figures were slightly better. With a speed up of government spending in Q4 , we change our 2024 GDP forecast to 4.8% from 4.6%. 
• However, despite a further Yuan1.5-2.0trn of fiscal stimulus to come, we still see 4.5% 2025 GDP.  
• Stimulus is not focused on the consumer, while the residential housing market has not bottomed in construction or sales terms.  

• The latest Global Innovation Index shows that Asian economies are not yet fully reaping the benefits of innovation-led growth. 
• Despite their strong performance in the overall rankings, Asian economies, including frontrunner Singapore, underperform in translating their considerable input investments into tangible outputs. 
• As the conventional growth drivers of trade, demographics, and physical capital start running out of steam, Asian economies need to catch up to the innovation frontier to promote future growth. 

• A consecutive ECB rate cut and the UK’s unexpected disinflation have led to an extension in dovish pricing, which appears stretched both in absolute terms and relative to the US. Despite this, Europe’s resilient labour markets continue to influence medium-term inflation.
• The Bank of Canada is predicted to implement a 50bp cut next week, following the Fed’s lead in the primary policy event.
• Flash PMIs, set to be released on Thursday, are considered the most significant data release, particularly due to the stark contrast between US highs and Euro area lows.

• HSI declined sharply in the beginning of the week and recoup half of the losses towards end-week.
• S&P500 rose by 1.15% and broke new record. Dow-jones also broke record high
• On the whole we hold the same portfolio throughout the week, loosing in the beginning and gaining back in the end of the week.

• The Central Bank of Chile reduced the policy rate by 25 basis points to 5.25%, in line with market expectations, reflecting a cautious approach to inflation management amid global volatility.
• External factors, including the Federal Reserve’s rate cuts and China’s stimulus measures, have contributed to higher long-term interest rates and a stronger US dollar, exerting downward pressure on the Chilean peso.
• Future rate cuts are likely, but their pace will depend on domestic inflation trends, global economic developments, and the central bank’s assessment of financial stability risks.

• Welcome to our China Watch series, where we look at the Chinese case through the lens of Western investors.
• Tomorrow, we will have another briefing aimed at boosting the property market, which is one of those tricky conundrums to deal with.
• Housing starts have already dropped back 20 years, and the value of unsold homes and projects is sky-high.

• Representatives of all relevant major Ministries showed up and had their say
• As is now usual from these events some positives as well as some disappointment
• Further steps taken to put a floor under the property market

• Stock market dominated by big tech companies, increasing importance of tech companies in equity market
• S&P 500 becoming more like the Nasdaq due to tech dominance
• Tech companies moving towards project-based financing and increasing interest in credit market, with potential for substantial returns in opportunistic credit opportunities

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• Healthcare sector continues to gain momentum in Hong Kong market during pullback with materials and energy sectors lagging.
• Value and Liquidity factors have outperformed since stimulus announcement in September.
• Anta Sports Products (2020 HK) , JD Health International (6618 HK) and Sands China (1928 HK) were rated as BUY as analysts turn toward China consumption plays as future winners.

• Observed significant economic activity at Tattersalls horse sales despite lower UK inflation, suggesting stable interest rates.
• Several Asian countries, excluding Indonesia, implemented interest rate cuts, showing varied economic responses.
• China’s gradual easing aligns with expectations, while Vietnam’s surprising GDP growth raises questions about statistical accuracy.

• BRICS can provide a political buffer but not economic, as BRICS are still searching for practical areas for cooperation.  
• However, Donald Trump universal tariffs threats could focus BRICS on more intra EM trade.
• BRI has already helped to redirect China exports to EM countries, despite the slowdown in new lending to BRI countries. 

• Euro area headline and services inflation were trimmed in the final prints for October, reinforcing the disinflationary imperative in the ECB’s decision to cut rates again.
• The news on underlying inflation was mixed between countries and measures. Things broadly remain close to target-consistent levels but need not stay like that.
• We remain concerned about potential over-extrapolation and focus on disinflationary data points, although that seems unlikely to change in time to block a December cut.

• Surprisingly steep disinflation and drops in the PMIs shocked expectations for the ECB’s October meeting, which were matched by the realised 25bp rate cut.
• The coherent story of disappointment magnified the strength of the signal enough for the ECB to act. Much more data will be available by the December decision.
• No commitments were made to act or not, but the hurdle is lower with a forecast to communicate the totality of the news. We expect a cut then before the pace slows.

• Short-term 20-day MA remained elevated through September to mid-October 2024  
• SIR20 traded at a discount to futures  
• Processors in Thailand and Indonesia faced more margin pressure due to high raw material costs  
• The forward curve shows October 2024 prices at their highest for the year

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• Consumption declines by .3% to 356,000 tons in Q1 FY 25
• ATMA says April-Sept 2024 production 37% lower year on year
• ATMA asks Rubber Board to expedite data publishing

• The fiscal briefings from China last weekend were exactly what we feared and have been warning about—a big nothing burger.
• China keeps applying supply-side measures to a demand-driven problem, which is unlikely to succeed.
• What China really needs is a forced increase in demand across the system, but instead, they’re focused on trying to incentivize demand for assets or reshuffle credit profiles.

• Surprisingly soft UK inflation data extended across the headline and conventional core metrics, partly because of substantial payback in airfares after August’s surge.
• Only a slight unwind in October and ambiguous historical precedents for November mean much of this downside persists. However, other underlying signals were resilient.
• The BoE can focus on this downside news and cut in November. Ultimately, signals for the underlying pressures in the cyclically tight UK economy should urge an early pause.

• Bank Indonesia kept the BI-Rate at 6.00%, aligning with market expectations, focusing on inflation control within the 2.5% ±1% target and maintaining Rupiah stability amid global uncertainties.
• The central bank’s cautious stance reflects concerns about geopolitical risks and global market volatility, while future rate decisions will hinge on inflation trends, exchange rate stability, and economic growth prospects.
• Ongoing policy measures aim to reinforce external stability with strategic currency interventions and supportive macroprudential policies to bolster domestic growth drivers.

• The Bank of Thailand’s unexpected 25bp rate cut to 2.25% signals a dovish shift to support debt servicing, contrary to the consensus of no change.
• Future policy will hinge on inflation developments, particularly the gradual rise towards the target range, plus sectoral economic growth disparities.
• Credit conditions, debt deleveraging, and global monetary trends will influence the central bank’s rate trajectory.

• After Meeting with U.S. Investors, the Federal Government Announces Investments Exceeding $20 Billion by 2025.
• On October 15, a meeting was held between the Mexican government and 240 senior executives from the United States and Mexico, aimed at strengthening investor confidence.
• The Secretary of Economy, Marcelo Ebrard, highlighted during this dialogue that the ongoing legal reforms are focused on strengthening the rule of law and encouraging investment.

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• Active EM Funds delivered an average return of +6.85% in Q3, underperforming the iShares MSCI Emerging Markets ETF by 0.83%, with 38.8% of funds beating the index.
• Morgan Stanley Developing Opportunity and Aikya Emerging Markets topped the performance charts for the quarter.
• Underweights in Alibaba Group Holding and Meituan, and overweights in SK Hynix and cash holdings hurt performance.

• The recent Chinese fiscal briefing was underwhelming, as expected.
• China continues to focus on supply-side measures, which remain ineffective in addressing the pressing need for increased demand.
• Instead of stimulating consumption across the economy, China is attempting to incentivize asset demand and reshuffle credit profiles—approaches unlikely to produce meaningful results.

• Details of the extra central government spending/scaled up local authority purchases of unsold complete homes for affordable housing should be seen late October/early November from the National People Congress.  
• We estimate Yuan1.5-2.0trn of extra spending, which leads us to increase the 2025 GDP forecast to 4.5% from 4.0% — fiscal impact on 2024 will likely be very small.
• The more active government policy stance, also reduces the risk of a harder landing (circa 3%) to 10-15% from 20-25% in 2025.  

• With US bonds oversold, we expect the Japanese Yen to  strengthen
• Supplementary Budget from the LDP as new cabinet’s approval rating drops
• The broad Japanese indices will struggle here as this plays out

• The US oil and gas rig count rose by one to 586 for the week ending 11/Oct, marking an increase after falling for three consecutive weeks.
• The US oil rig count increased by two to 481. Meanwhile, gas rigs decreased by one to 101, after gaining six rigs over the last two weeks.
• For the week ending 11/Oct, US energy producers added six rigs in Texas and one in Oklahoma but cut two each in Pennsylvania, Louisiana, and New Mexico.

• SGX IO Futures declined by $1.94/ton over the week, closing at $106.21/ton on October 11th, with prices ranging between $103.05 and $115/ton.
• DCE premium over SGX surged to 10% on 8/Oct as DCE reopened after Golden Week, but the spread narrowed to 4.8% by 11/Oct. SGX underperformed DCE early in the week.
• Weekly options volume surged 188%, dominated by puts with a 1.04 put/call ratio, concentrated on November expiries and key strikes at 100 and 105.

• US natural gas prices fell 7.8% for the week ending 11/Oct, marking a second straight weekly decline as Hurricane Milton reduced electricity demand, driving down Henry Hub prices.
• Henry Hub Put/Call volume ratio fell to 0.69 (11/Oct) from 0.98 the previous week as put volumes fell by 27.3% WoW, while call volumes rose by 2.8%.
• Put OI increased for contracts expiring in November and April while call OI rose for expiries in December, January, February, and March.

• WTI futures rose by 1.6% for the week ending 11/Oct, as the simmering tensions in the Middle East outweighed persistent demand concerns.
• WTI options Put/Call volume ratio fell to 0.52 from 0.64 (04/Oct) as put volume dropped by 50.9% WoW while call volume fell by 39.8%.
• WTI OI PCR was unchanged at 0.76 compared to last week. Call OI rose by 5.7% WoW, while put OI grew by 5.8%.

• CTA Update Last week, the research division of UBS shared an update on the positioning of CTAs.
• Contrarian’ trades: bullish Energy, Cattle Feeder, Lme Lead and Lme Nickel, bearish Coffee, Cocoa, Platinum and Palladium
• Go with momentum’ trades: bullish Lme Tin, Copper, Gold and Lean Hogs, bearish Soybean, Soybean Meal, Wheat and Corn Hurricane Milton and Orange Juice Prices Orange juice futures rose as Hurricane Milton approached Florida throughout the week.

• UK unemployment dropped by another 16bps in August to 4.0%, sustaining a 0.2pp fall on last year. Short-term unemployment looks even tighter as demand trends resiliently.
• Resurgent employment and hours worked hawkishly drive the cyclical tightening while redundancies remain low and weekly vacancies trend slightly higher.
• Slowing wage growth provides an excuse for the BoE to cut again in November but not to accelerate easing nor extend it far. A policy reversal may be needed in 2025.

• Hugh Mackay provides insights into the future of iron ore, copper, and steel dynamics
• China’s recent stimulus announcement and its impact on global commodity markets
• Challenges faced by Chinese authorities in addressing deflation and household sector confidence.

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• Discussion on the impact of elections on FX and various hedges
• Focus on trade and fiscal policies as key factors influencing FX
• Potential scenarios and dominant teams in different election outcomes, with Republican sweep seen as favorable for dollar strength

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• Hong Kong Dollar continues to trade at the strong end of its band  resulting in upward pressure on HIBOR in turn causing a further unwind of the HKD carry trade.
• HSI shows the strongest market breadth in 15 years as nearly all members trade above 200 DMA.
• Xtep International (1368 HK) , Xiaomi Corp (1810 HK) and China Education Group (839 HK) all had breakouts to form uptrends.  All are part of the consumption sector in China

• The fiscal briefing in China tomorrow will be crucial, as inflows into the country have significantly diminished in recent days.
• This highlights the need for a constant stream of positive news to sustain the rally.
• Given the expectations building around the message from Chinese authorities, we don’t have high hopes that they will exceed market consensus.

• Happy Sunday from Copenhagen!I spent most of Saturday morning discussing the fiscal briefing with clients.
• Even though I’m admittedly not as actively involved in business with China as I was a few years ago, I still feel relatively comfortable assessing the ramifications of the briefing.
• It was exactly what I feared: a big nothing burger.

• Our most prominent theme this year has been to BUY HK/China markets.  We are still very bullish on these SECULAR BULL markets.
• We have been Bullish on gold and discussed the asymmetry of its price movements given the global tightening starting in 2021/22.  Gold will continues to benefit from negative real rates.
• We have been Bearish on Japan since publishing Technically Speaking: Japan Meets Resistance and Hong Kong Finally Breaks Downtrend on April 2nd.  Japan’s market is facing significant headwinds going forward.

• China housing crisis will likely mean that household debt/GDP flat lines in the coming years like Japan after 1990 and be a headwind for consumption.
• Meanwhile, the downturn in residential construction is already greater than that experienced by Japan after 1990 and in itself will be remain a structural headwind for China GDP.
• Though China corporate debt/GDP ratio is higher than Japan in 1990, China LGFV debt is 50% of GDP and will be swapped for local and central government debt.

• This week we look at Bukalapak, as Emtek increases its direct stake, Astra‘s latest healthcare push into cardiology, and Ohhaju (OKJ TB), Thailand’s latest organic food IPO. 
• We also look at Sea Ltd (SE US)‘s latest move to apply for a digital banking licence in Thailand, which will help to further increase the platform’s regional footprint.   
• CrossASEAN Ground Zero is a thematic weekly product that focuses on key Southeast Asian themes and technology trends with a core focus on Indonesia.

• USTR clamping 50% duty on Chinese gloves from Jan comes in handy
• Over 35% Malaysian rubber glove exports directed to the US
• Malaysia’s rubber and products exports rise to RM15.5 bn in H1 2024

• Iron ore prices dropped below $105/ton on 8 Oct after China’s NDRC failed to announce new stimulus measures, tempering bullish sentiment from earlier liquidity injections.
• Chinese portside inventories grew by 590k tons, reaching 147.84 million tons by 11 Oct, driven by higher arrivals and slower post-holiday consumption.
• While RSI signals bullish momentum, MACD shows a fading rally. Prices approach the critical 200-day moving average at $110/ton, posing a potential resistance point.

• China is not in a 2015 boom/bust period with households under-invested in the stock market.
• It is now time for China to begin fiscal stimulus as discussed at the MOF meeting over the weekend.  Central government will relieve local governments’ hidden debt through debt swaps.
• PBOC and MOF will closely watch interest rates and government yields as they roll out fiscal measures.  CNY levels will also be considered in future policy decisions.

• The Fed’s policy pivot to concentrate on the labour market reflects the priorities of politicians who view full employment as the more important mandate compared to price stability.
• Doubts about the wisdom of the Fed’s aggressive policy rate reduction have increased since the release of the September Employment Situation report. Bond investors have demanded a higher term premium.
• Surveys on household and business optimism are sending worrying signals.  Fed credibility will face communication challenges as long as forward guidance indicates easier policy but economic outlook risks remain balanced.

• Volatility in economic data feeds through to bond market volatility because of the Fed’s increasing focus on data dependency.
• Wobbles in earnings estimate growth at the start of Q3 earnings season is leading to uncertainty in stock prices.
• We believe these sources of volatility will resolve themselves in a benign manner.

• Stock market internals are call for near-term caution but intermediate-term bullishness.
• Election uncertainty, along with cross-currents such as the stronger-than-expected CPI report is creating market volatility.
• But market internals reveal a strong bull trend and a near-oversold condition.

• Heavyweights attended as per previous conferences. Finance Minister (FM) Lan Foan and his three deputies
• Economists’ and market expectations damped down to RMB 1.5 – 2 Trillion in stimulus.
• Some major positive points we believe, but will be a disappointment to some

• Beijing’s latest policy announcements show that it is no longer content with a managed slowdown. They are now committed to more energetic policy support for the economy. 
• Given the slowdown’s entrenched roots, partly due to Beijing’s prior reluctance, we do not think that the current package alone will turn things around. 
• But with Beijing taking the cyclical slump more seriously, further support measures are likely, which, cumulatively, may be sufficient to stabilize short-term economic conditions. 

• Delay in EUDR to lead to renegotiation of premium
• Talks of removal of Ivorian cup lump ban

• China’s economic policy remains focused on investment, with low expectations for a significant stimulus from the Ministry of Finance.
• International reserves are generally increasing across Asia, supporting currency appreciation, except for Indonesia.
• Japan’s recent data shows rising cash earnings but declining real wages and household spending, highlighting concerns in the real economy.

• We were right on the sideway walk eventually of HSI but far underestimate its volatility.
• US S&P is comparably more boring, edging north merely by 0.74% for the week
• Gold retreated a bit in the previous week but is instill a marvelous medium-term choice given the Fed rate cut cycle.

• US inflation has surpassed expectations, along with strong payroll releases, despite a dovish bias. The Reserve Bank of New Zealand has followed the Federal Reserve’s 50bp, Korea has begun cutting rates, and Peru has unexpectedly maintained its rates. Early-easers are reconsidering their strategies.
• The European Central Bank is expected to cut rates next week due to a dis-inflated outlook and disappointing demand. This expectation is shared by the market and consensus, although it is not a certainty.
• UK inflation data is predicted to slow, while the labour market continues to remain tight.

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• The Bank of Korea cut its base rate by 25bp to 3.25%, in line with the consensus, citing stabilised inflation and a slowdown in household debt growth.
• Future rate decisions will depend on the domestic demand recovery, which remains sluggish, alongside heightened global economic risks such as geopolitical tensions and volatility in foreign exchange markets.
• The central bank will continue to weigh the trade-offs between growth and financial stability, with particular attention to household debt and housing market dynamics amid potential further rate cuts.