Daily Briefs

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

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

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

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

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

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

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

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

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• Trade / Cover Story: Fixing China’s trade imbalance needs a home remedy
• FDI /: Net foreign direct investment withdrawals from China hit record high
• Zhongzhi /: Criminal charges handed to 49 Zhongzhi employees after dramatic downfall

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