Macro

• Output hikes announced in fourth quarter
• Various commodities including copper, natural gas, and grain oilseeds have experienced sharp declines
• Oil prices influenced by economic indicators, strong underlying demand, and declining global visible oil inventories

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• Happy Sunday, folks—if you can stay upbeat in the current market environment, that is.
• We have had September 100% spot on, and the developments late on Friday support our notion that a dash for USD cash will arrive through the month.
• The USD started rebounding alongside the sell-off in commodities and risk assets, following Waller’s appearance during the FOMC Q&A.

• Happy Friday from Copenhagen! This week has revolved around the NFP report from an allocation perspective, with markets being hypersensitive to employment-related data throughout.
• ISM Employment and Job Openings have once again become major players on the economic calendar.
• Today’s NFP report was dovish overall, coming in below the consensus of 165k at 142k, with the July number revised down by 25k, offering little in the way of positive signs.

• Conventional wisdom suggests presidential debates don’t influence most voters.
• In the current unique election cycle, polls indicate otherwise.
• Both candidates have a lot at stake in the upcoming 10 September debate.

• We expect August’s CPI to increase by 0.2% both overall and ex food and energy, with the respective gains before rounding being 0.18% and 0.21%.
• Such an ex food and energy rate would be slightly stronger before rounding  than in the preceding three months, though not strong enough to trouble the FOMC.
• We expect a slightly firmer ex food and energy rate, because some components are unlikely to be quite as soft as in recent months.

• The past week saw insights on Erajaya Swasembada (ERAA IJ), Jardine Matheson Holdings (JM SP), and a shortlist of high-conviction buys in the Philippines. 
• There was also a macro insight on Malaysia and CrossASEAN Ground Zero looking at OVO and Superbank, SCG Packaging (SCGP TB), GoTo, and Telekomunikasi Indonesia (TLKM IJ).
• 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.

• Markets experienced significant volatility in response to comments from New York Fed presidents and Governor Waller, resulting in pricing of around 30 basis points for the September meeting
• Labor market data suggests softening, with revisions showing a decline in private sector payroll growth, indicating a shift towards imminent Fed easing
• Opportunities in Treasuries lie in steepeners, with a focus on front end steepening and potential for further broadening of the steepening trend as the Fed moves towards easing.

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

• Jul’24 was the weakest month for NFPs, and Jun-Aug’24 the weakest 3-month period, since Dec’20. Sahm Rule predicts recession: unemployment rate (averaging 4.2% Jun-Aug’24) is 0.57pp above 12m low (Nov’23-Jan’24).
• ISM manufacturing PMI has been below 50 for 11 of past 12 months, with new orders slumping anew in the past 5 months — suggesting a sharp cyclical downturn ahead.
• Core PCE inflation is 2.6%YoY (and just below 2%MoM annualized) in May-Jul’24. That’s enough to ensure a 25bp cut next week. Recession risk necessitates 50bp cut, but it won’t happen. 

• US oil and gas rig count fell by one to 582 for the week ending 06/Sep, marking a decline in rig count for the fourth consecutive week.
• The US oil rig count is unchanged at 483 for the third consecutive week. Meanwhile, gas rigs declined by one to 94, marking their lowest level since April 2021.
• For the week ending 30/Aug, US crude oil production stayed flat WoW at 13.3m bpd. In August, production reached a record high of 13.4m bpd on two occasions.

• Since our latest economic outlook report, the U.S. economy has shown signs of softening, particularly in the labor market, and financial markets have experienced increased volatility.
• While concerns about an imminent recession are overstated, we do anticipate a gradual slowdown in economic activity as we approach 2025.
• This slowdown is likely to be driven by elevated prices and interest rates of the past two years, which will weigh on private sector activity and lead households to become more cautious in their spending.

• The undulating prospect of a 25bps or 50bps cut at the September Fed meeting coupled with a foggy future rate path is weighing on market sentiment
• The state of financial market conditions–broadly and narrowly defined–may abruptly influence the outcome of upcoming Fed meeting/s, or vice versa
• My weekly estimate of market leverage in the US hedge fund sector in total, which remains elevated at this time, warrants more attention

• The stock market is due for a period of sloppiness and corrective action in the next two months
• However, macro and technical indicators do not point to a major market top.
• We have outlined a number of bullish tripwires for traders to take advantage of a pending sale on stock prices and buy the dip.

• Fed policy is now at a critical juncture as data dependency dictates the speed of interest rate reductions. Current data indicates the US economy still has respectable momentum.
• Continued high levels of borrowing by the US Treasury could “crowd out” private sector investment. Toxic politics is boosting economic uncertainty, negatively impacting animal spirits and prospective returns on investment.
• There is no evidence of manufacturing onshoring boosting activity or capacity growth. The service and manufacturing sectors will remain range bound until political uncertainty is resolved after November’s US elections.

• Concerns about a further slowdown in the Chinese and US economies have led to the commodity complex selling off, but copper remains resilient at the 9000 USD/ton level.
• Copper inventories on the exchanges have declined by over 6% in the last three weeks, although they remain elevated at over 470k tons. 
• We see pockets of value emerging in equities post the sell-off but would only trigger stocks like Southern Copper (SCCO US) and Ivanhoe Mines (IVN CN) at lower levels. 

• Since July, US macroeconomic momentum has weakened substantially.
• We are now back on a negative trajectory for cyclical growth, with signs of fading momentum in some service sectors, including leisure and hospitality.
• In the spring, we observed a significant build-up of orders relative to inventories as manufacturers sought to bypass the latent pressure from trade tariffs by front-loading activity.

• Iron ore broke out of its three-year band two weeks ago and, after a brief recovery, trended lower by 9% WoW. It is now within touching distance of 90 USD/ton. 
• Chinese steel margins showed no signs of improving, with the average mills losing 70-80 USD/ton. Iron ore inventories continued to climb at the ports, exceeding 150 million tons.
• We would stay clear of iron ore names for the time being as we wait for iron ore to consolidate at some levels. 

• BOJ sows confusion with hawkish and dovish statements regarding its tightening policy. On a USD-basis the Japan market failed again to break its long-term resistance indicating a “Dead Cat Bounce”.
• Auto and Semiconductor sectors pressured by US trade policies and Trading Companies are affected by JPY strength.  US rejection of Nippon Steel Corporation (5401 JP)merger affects Japan steel sector.
• Higher domestic yields is a catalyst to reverse the large money flows from Japan during the Kuroda years.

• A preliminary review of sector leadership is flashing bearish vibes and defensive sectors are dominant while technology and cyclicals lag.
• A more nuanced review of factor and style leadership argues for a benign explanation of a broad-based rotation from growth to value and from large caps to small caps.
• We are inclined to embrace the benign view. Both the S&P 500 and NYSE Advance-Decline Lines recently reached all-time highs. Bear market tops don’t behave this way.

• U.S. PMI dropped to 47, sparking concerns about slowing economic activity ahead of the expected interest rate cut.
• India’s economy continues to outperform Asia, with a PMI of 57 and strong Q2 GDP growth.
• Hong Kong’s property sector faces challenges, with weak earnings reports from New World and Sun Hung Kai.

• Though our baseline view is for a soft landing for the U.S. economy and only one 25bps cut by end 2024, uncertainty exists over the scale of the slowdown. 
• If the U.S. economy has a harder landing (stagnation/technical recession with 20-25% probability), then the Fed could likely cut the Fed Funds rate to 2.50% or below in 2025.  
• A skew exist to lower Fed Funds depending on the outcome of the economy.  

• US S&P 500 declined by 1.85% in the past week and Hong Kong Hang Seng was down 2.34%, and Hong Kong typhoon leads to trade halt on Friday.
• Our strategy did not change in the past week, still holding on long PLTR call, long Link Reit (HKG:0823) call, and shorting Tracker Fund (HKG: 2800) call.
• Except we have taken some profit by selling Link Reit call, which increase quite handsomely as underlying rose by over 3% in the middle of the week.

• The US unemployment rate has dropped and wage growth has increased, which should lead the Federal Reserve to a 25bp cut in September. Other central banks have also ceased leaning towards dovish surprises.
• The upcoming ECB decision is anticipated to result in a 25bp deposit rate cut and further adjustments to the refi and lending rates as the corridor narrows.
• UK GDP and labour market data, as well as US inflation, are other significant highlights to look out for.

• August’s non-farm payroll is a little weaker than expected with a 142k rise overall, with significant negative back month revisions in the preceding two months totaling 86k.
• However the data is stronger than July’s, not only in the payroll, but also a correction lower in unemployment to 4.2% from 4.3%, a reversal of July’s dip.
• This suggests a 25bps FOMC easing in September rather than 50bps.

• In this insight, we compare the outstanding shares changes in the Korean stock market (KOSPI and KOSDAQ) relative to M7 (Magnificent 7) companies. 
• In Korea, there are more companies such as Samsung C&T, KB Financial, and KT&G that are actively reducing their outstanding shares and investors are rewarding them with higher share prices.
• Top 10 companies in KOSPI that reduced their outstanding shares (from end of 2019 to 5 Sept 24) experienced average share price increase of 116% on average in this period.

• Act II  of the drama begins  and continues from where it left off in early August
• Sentiment has changed – bad news really  is  bad news
• With >100 basis points of cuts already priced in before year end…

• China consumption patterns are divergent; slowing and becoming more volatile at a sub sector level.
• Less certainty over new employment and wage growth, plus wealth worries over housing are some of the causes.  
• We forecast GDP to slow in H2 and be 4.0% in 2025.

• Correspondent Tom Wilson visited Fujairah, a booming port city in the UAE where oil trading has exploded in recent years
• Western sanctions on Russian oil exports have led to a redirection of global energy flows, with the UAE emerging as a major energy trading hub
• Switzerland has historically been a top location for commodity traders due to its banking secrecy and political neutrality, but the rise of UAE as an oil trading hub is shifting the balance of power in oil markets

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

• Most recent update of our Country Insights model ranks China as the seventh strongest performer in our labor productivity growth sub-factor. However, the country’s score is downward after the GFC.
• The labor productivity growth sub-factor measures the extent to which labor contributes to GDP. It uses the average growth of GDP per person employed over the past five years.
• This sub-factor is then used to calculate our Country Strength Index, which is the overall country strength score reflecting the country’s macroeconomic, growth potential, political and social strength.

• Dismissing popular concerns alienates potential voters for some traditional and current parties of government. The resultant democratic deficit positions them as far-centre.
• Popular alternative views need careful respect, either triangulating their essence into the policy platform or an honest pitch for why an alternative path is superior.
• Parties that adapt can thrive. Those who keep dismissing ideas outside their perceived Overton window will suffer. Political fortunes can be evaluated through this lens.

• For the week ending 30/Aug, US crude inventories fell by 6.9m barrels, surpassing analysts expectations a 600k barrel drawdown. Distillate stocks surprisingly dropped, while gasoline inventories unexpectedly rose.
• US natural gas inventories rise 13 bcf for the week ending 30/Aug, missing analyst expectations of a 26 bcf buildup. Inventories are 10.7% above the 5-year seasonal average.
• ADNOC to acquire a 35% stake in ExxonMobil’s proposed low-carbon hydrogen facility. BPN Paribas raised the target price on Chevron, while Grupo Santander downgraded TotalEnergies.

• Hello everyone, and welcome back to our weekly positioning watch, now moved to Wednesdays.
• Global macro has truly been a rollercoaster these past few weeks, and market narratives have constantly changed, making it somewhat difficult to navigate.
• Everyone has been juggling around between the growth party and recession stories, and markets have increasingly been leading into cyclical trades after the July NFP dust settled, believing that the signs we saw from the labor market was a one off.

• Over the past weeks, we are beginning to hear more and more talk of Ukrainian President Zelenskyy heading to the US to present a “plan to end the war” like a salesman trying to renew a customer deal for one final term.
• Does this mean that we are looking into an upcoming peace settlement or is Zelenskyy simply grasping after straws?
• In this piece, we’ll try to give you the strategic overview and our forecast of a possible path forward and out of the war, which would have enormous effects on global markets.

• The Central Bank of Chile cut the MPR by 25 basis points to 5.5% in response to slowing economic activity and inflation dynamics, aligning with market expectations again after surprisingly holding the rate steady in July.
• Chile’s financial market mirrored global trends, with falling short- and long-term interest rates and a modest appreciation of the peso. However, credit growth remains weak, especially in the commercial sector.
• Future MPR cuts will likely proceed faster than previously projected, contingent on macroeconomic conditions and inflationary pressures, with the Bank committed to ensuring inflation remains on track to reach 3% over the two-year horizon.

• We see a 30% probability of a harder landing in China GDP growth in 2025, which we most likely be in the 3-4% region but could persist into 2026.  
• A large than projected slowdown in consumption would be a key concern, alongside persistently moderate negative deductions from residential investment. 
• Negative inflation would only worsen this situation, while China authorities appear reluctant to go beyond targeted extra policy support towards aggressive action.

• Hi all, Beginning this week, we’re merging our weekly coverage of the energy/commodity space and geopolitics.
• This will allow us to be even more actionable and specific when analyzing global events, as the ramifications of war and peace are most often felt in the commodity space.
• Take aways: Increasing crude production in the current environment likely means a >25% drop in crude oil prices. There’s significant open interest in December crude put options. Geopolitically, major players are closely monitoring OPEC’s decisions.

• Despite a strong start, WTI prices fell 1.7% for the week ending 30/Aug, as demand concerns outweighed the worries of supply disruptions in Libya. 
• WTI options Put/Call volume ratio increased to 1.72 from 1.13 the week prior as put volume increased 45.6% WoW while call volume declined 4.5%.
• WTI OI PCR increased to 0.78 (30/Aug) from 0.75 (23/Aug) as call OI rose 4.5% WoW and put OI increased by 8%. 

• In this edition, we look at OVO and Superbank in Indonesia and how they will coexist, and SCG Packaging as it increases its Indonesia exposure through Fajar Surya.
• We also look at the implications of the recent gig worker protests in Indonesia and Telekomunikasi Indonesia‘s increasing focus on data centres and a strategic investor there.
• CrossASEAN Ground Zero is a thematic weekly product that focuses on key Southeast Asian themes and technology trends with a core focus on Indonesia.

• US natural gas prices rose 5.2% for the week ending 30/Aug, driven by warmer weather forecasts and low prices encouraging power generators to favour gas over coal.
• Henry Hub Put/Call volume ratio fell to 1 from 1.34 the previous week as put volumes dropped by 38.5% WoW, while call volumes declined by 17.5%. 
• Put OI rose for expirations in Sep, Oct, and Nov, while call OI increased for contracts expiring in Dec, Jan, and Feb. 

• Equity prices retested their peaks, but rate expectations for Dec-25 remain near their dysfunctional lows. Demand cannot be both high for revenues and low to justify easing.
• Residual pricing for a 50bp Fed rate cut exacerbates the inconsistency. Realising a 25bp cut should hawkishly reprice US rates relative to others, supporting the USD.
• The S&P500’s potential doesn’t seem worth the risk of a crash relative to the reliable money market yield, which could easily outperform, especially in risk-adjusted terms.

• Steel / Chart of the Day: China’s increasingly embattled steelmakers
• Accident /: Bus hits crowd outside middle school in East China, killing 11
• Banks /: Another key executive at Bank of Beijing falls from grace, sources say

• Gross fixed investment contracted by 1.0% MoM in June due to the completion of public infrastructure projects that impacted construction investment, and the contraction in imported machinery and equipment investment due to the depreciation of the peso.
• This suggests that the economic slowdown could persist in the second half of the year, pointing to GDP growth of 1.5% in 2024.
• Throughout 2024, there were mixed signs of deceleration in the components of fixed investment.

• Happy Labor Day! In this article, we are going to look into a feisty week of economic releases from the US economy given the backdrop of our nowcasting slowing considerably into September again.
• Our congestion based data has remained at muted growth levels, while the taxation data is starting to re-weaken, which is interesting into an otherwise strong tax season in September.
• Chart of the week: The Macro Environment is weakening in the US. Looking at the week ahead, we are on growth, liquidity, and inflation watch, especially focusing on the US.

• Drugs / Cover Story: China formally enlists ‘miracle’ drug in fight against ballooning obesity rate Fang Xia, a 24-year-old woman, has faced a lifelong struggle with obesity, a condition that has plagued her both physically and psychologically.
• But like millions of others around the world, her life was turned around after taking semaglutide, a glucagon-like peptide-1 (GLP-1) analog that mimics a hormone that triggers a sense of fullness and helps overweight people shed the pounds.
• She was among the first batch of patients in China to be given the drug, originally prescribed to treat diabetes but repurposed “off label” to help people lose weight, and after 10 months, Fang lost over 50 pounds.

• There is a potential for unstable governance in the short to medium term in both Berlin and Paris.
• Investors should be particularly cautious due to this instability.
• The incoming College of European Commissioners may be significantly weaker than the previous one, increasing investor concerns.

• Hong Kong market quietly broke its downward trend channel last week, however the HSI met strong resistance at 18200 (100 Week Moving Average).
• PICC Property & Casualty H (2328 HK) and China Petroleum & Chemical (386 HK) broke to new highs relative to MSCI indices.  Sinopec may benefit from stronger RMB in 2H24.
• Shenzhou Intl Group Holdings (2313 HK) had a short-term turnaround from its downtrend.  The company reported growth in sales and better margins in 2Q24.

• A monthly review of how the markets and our themes are currently performing
• Analysing what went wrong and what went right in stocks and sectors
• Highlighting positions added or removed from the thematic investment portfolio

• Iron ore futures rose 5.3% last week but declined 3% on September 2nd, signaling a potential continuation of the downtrend.
• Technical indicators such as RSI, MACD, and Bollinger Bands suggest a short-term downtrend, with price struggling to break above the 21-day moving average.
• Elevated historical volatility near a 4-month high indicates that market instability may persist, suggesting caution in trade setups.

• Despite sharp price moves, iron ore options activity was muted with a sharp decline in put volumes.
• The DCE/SGX spread widened from 4.6% to 7.5% as DCE futures traded at a premium.
• SGX Iron Ore options volume fell by 31.8% WoW, with increased call activity focused on September expiries at the 105 strike.

• The fiscal deficit’s 12mma was below 4.3% of GDP in Jul’24 (far below the 4.9% target for FY25), reflecting surging direct tax revenue and above-target non-tax revenue (dividends).   
• Q1FY25 merchandise deficit expanded 10.5%YoY to US$62.08bn, as exports grew 6%YoY and imports 7.7%YoY. Services exports grew 10.6%YoY, services imports 6.9%YoY, widening the services trade surplus 15.4%YoY to US$40.52bn. 
• Given typical quarterly incomes surplus of US$14.4bn, the CAD in Q1FY25 likely declined 20%YoY to US$7.2bn, so H1CY24 CAD was US$1.5bn (vs US$10.3bn in H1CY23). Seasonality should eliminate FY25 CAD. 

• It’s been a relatively uneventful week, and we haven’t been overly active as we await September trends for our portfolio.
• Examining our underlying model package, we’ve identified two major themes worth noting for the month ahead: the sudden weakness in China and the impending drawdown in USD liquidity.
• Starting with China, we’ve highlighted how pollution levels are plummeting, while congestion data from ports, roads, and metros declined significantly in August.

• Iron ore futures surged 5.3% last week but fell 3% on September 2nd, reflecting uncertain price sentiment.
• Chinese portside inventories rose by 3.4 million tons, reaching a two-year high, driven by high arrivals and reduced pick-up volumes.
• Heading into peak consumption season in China, supply headwinds may drive sentiment rather than demand tailwinds.

• Happy Sunday from Copenhagen.
• Almost exactly a year ago, we wrote about the “roadmap to a recession” and how the market wrongly anticipated a near-term recession going into 2025.
• We also labeled the increasing re-inflation and manufacturing momentum a head-fake during the spring as the credit growth never truly supported a comeback to the most cyclical parts of the economy.

• US oil and gas rig count fell by two to 583 for the week ending 30/Aug, marking a decline in rig count for the third straight week.
• The US oil rig count remained unchanged at 483 for the second consecutive week. Meanwhile, gas rigs declined by two to 95, marking their lowest level since April 2021.
• For the week ending 23/Aug, US crude oil production declined to 13.3m bpd bpd, down from the record high of 13.4m bpd reached the previous week.

• There is a high level of bullish sentiment about copper in the market, with strong interest from companies and analysts.
• Demand projections for copper are driving the need for new deposits, but existing assets are currently meeting demand through resource growth.
• Contrarian views suggest that existing assets are outperforming new discoveries in meeting copper demand, with potential for production delays of up to 15 years for new deposits.

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

• India’s GDP growth slowed to 6.7% yr/yr in Q1 FY25, falling short of expectations, as reduced public spending during the election period weighed on economic activity.
• Strong private consumption and investment provided some support, but a decline in manufacturing growth and weak external trade dampened overall momentum.
• Looking ahead, easing inflation, improved farm output, and a rebound in government spending are expected to drive growth in the coming quarters.

• We are seeing warnings that the market is due for a pullback and correction.
• We pointed out last week that election year seasonality tends to see weakness in September and October, and the current market structure confirms that view.
• While we don’t know what the trigger for a correction might be, investors should be prepared for a period of short-term weakness and a possible buying opportunity in October.

• US monetary policy conduct remains data dependent following Fed Chairman Powell’s dovish pivot. The US dollar has weakened, but the economic growth outlook for 2025 should increasingly drive currency movements.
• Dollar weakness could force foreign investors to liquidate positions in US financial markets. High hedging costs have raised the spectre of significantly larger losses for foreign investors. 
• European private investors have become important marginal buyers of US Treasury securities since early 2023. Higher volatility Treasury yields could occur if foreign hedge funds exit without new marginal buyers.

• The U.S. stock market appears to be overvalued by a number of metrics, but deep value stocks in the U.S. are still cheap.
• Our list of LBO candidates, which tend to have strong cash positions, strong balance sheets and cash flows, represents a pocket of deep value.
• The retreat in junk bond yields has made these stocks even more attractive as investments.

• Fortescue Metals (FMG AU) reported a revenue/profit number of 8%/15%, with profits 8% lower than our expectations because of higher depreciation. 
• The company guided a mid-point iron ore shipment of 195 million tons (Vs. 192 in FY24) and a capex of 3.2 bn USD in metals/500 mn USD in Green Energy.
• Trading at 6.7x PE with a 10% dividend yield (trailing) with iron ore prices averaging 118 USD in FY24, the focus shifts to a scenario analysis for FY25. 

• China’s manufacturing activity sank to a six-month low in August as factory owners struggled for orders, pressuring policymakers to press on with plans to direct more stimulus to households.
• The purchasing managers’ index slipped to 49.1 from 49.4 in July, its sixth straight decline and fourth month below the neutral mark of 50, missing the median forecast of 49.5.
• After a dismal second quarter, China lost momentum further in July, prompting policymakers to signal they were ready to deviate from pouring funds into infrastructure, instead targeting stimulus at households.

• We provide country risk reviews for Asia countries including China, Taiwan, Cambodia, Lao, Mongolia, and Myanmar.
• Cambodia’s, China’s, Lao’s, and Mongolia’s overall risk is medium high.
• Taiwan’s risk is medium low and Myanmar’s risk is high.