Daily Brief Macro: August Themes and Thematic Portfolio Review and more

• 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.

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• 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.