Daily Brief Macro: BOJ and Carry Trade: THE BUTTERFLY FLAPPED ITS WINGS and more

• The crowded JPY carry trade will not unwind quickly although future unwind episodes may not be as dramatic.
• The size of the carry trade is unknown, however its correlation to various asset classes is predictable.
• The largest question for global markets is whether the unwind of the JPY carry trade is a harbinger of tighter monetary conditions globally as markets decline and leverage tightens.

• VIX has become lively, reintroducing volatility to the markets
• Small caps are gaining attention after being neglected for years
• Discussion on credit cycles and potential risks in commercial real estate market, with a focus on interest rates and property values

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• US crude inventories fell for the sixth straight week by 3.7 mb, exceeding the 1.6 mb decline expected by analysts. However, gasoline stocks rise by 1.3 mb.
• For the week ending 02/Aug, US natural gas inventories were up 8.2% YoY and 14.9% above the 5-year seasonal average.
• Occidental shares surged as it beat Q2 EPS estimates by 32.5%. Exxon and Aramco also exceeded EPS forecasts, while Chevron fell short.

• Discussion on the recent market volatility, particularly in metals markets
• Gold being a standout performer, while other commodities struggle
• Challenges in finding solid investment opportunities and concerns about earnings for gold companies

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• Welcome back to our monthly regime update, sharing insights from our data hub on cross-asset returns in different regimes.
• Coming into July, we wrote: “While we are not convinced of the general US recession call following the poor ISM Services report, our forecasts for the coming month place us in the ‘QE (Like)’ regime bucket – Growth lower, Inflation lower, and Liquidity higher.
• That said, our slightly rosier view on Growth (compared to consensus) leads us to consider and balance this against asset performance in the ‘Gung ho’ regime (Growth and Liquidity higher, Inflation lower).” And while, we had the input variables and our forecasts almost 100% correct, the market ended up souring substantially after the CPI report in Mid July due to the turning tide in USDJPY.

• Monetary / Caixin Explains: Why and how China’s overhauling monetary policy (Part 2)
• Housing /: Guangzhou district uses quasi-Hukou to lure new homebuyers
• Land /: Shanghai plot in high-end district breaks 2016 price record

• Hang Seng recovered by 2.48% to 17000 level and S&P 500 declined by 1.07% over the past week. S&P was particularly hit by the global stock decline on Black Monday.
• We are betting Hang Seng will be up for one more week and hence is heavily loading up call position on Hong Kong stocks.
• US market is much harder to predict in the coming month and therefore we are not easily building up any position in it first, until rate cut in September.

• Last El Niño was one of the strongest on record, and typically are followed by La Niña, but this transition has yet to occur. 
• Latest ONI Reading and trend shows possibility of La Niña developing in August-October, could coincide with winter. 
• Historically, adverse weather changes and high hurricane incidence are likely to spoil bearish bets against corn and lead to sustained price recovery.

• ASEAN will be the engine of global economic growth in the coming decades. 
• With stocks in ASEAN countries benefiting from rapid economic growth, the Premia Dow Jones Emerging ASEAN Titans 100 ETF (SEHK 2810) and FTSE SE Asia ETF (NYSE: ASEA) will thrive.
• Southeast Asia is the next “economic miracle” after the BRICs and stocks there could thrive in coming years.