In today’s briefing:
- China Economic Scenarios
- EM Watch: Is the Chinese copper demand down 40%?
- Positioning Watch – Increasing the BETA risk?
- Scandi Watch: Stay long NOK (and pay NOK rates) into Norges Bank
- CX Daily: Alipay and WeChat Pay’s Smaller Peers Struggle Amid New Crackdown
- UK Services Air-Lifts Dovish Pressure
- US FOMC Projections Too Pessimistic; Two Rate Cuts Likely in 2024 as Inflation Abates
China Economic Scenarios
- Uncertainty about China’s growth outlook over the next 1-2 years has increased with the government undertaking a tricky transition toward sustainable growth and a more active regulatory environment
- Further fiscal policy stimulation will be required to keep growth on track to hit 5.0% in 2024
- We do not feel that China’s equity market is cheap enough yet to reflect these risks, while domestic investors are not being supported by excess money supply growth.
EM Watch: Is the Chinese copper demand down 40%?
- Welcome to our weekly EM and Metals editorial.
- It’s hard not to talk about China again this week, given the importance of the metals trade for global inflation expectations.
- Our live assessment of the Chinese recovery continues to paint a stalling picture in Real Estate, exemplified by the physical copper demand being on the edge of a precipice, while the pollution based metrics hint of a continued surge in industrial production into June.
Positioning Watch – Increasing the BETA risk?
- Hello everyone, and welcome back to our weekly positioning watch.
- Our newly invented high-frequency hedge fund positioning data was well received, and we’re working on expanding it to more assets on a running basis.
- It’s worth revisiting the points we raised about concentration in broader equity indices.
Scandi Watch: Stay long NOK (and pay NOK rates) into Norges Bank
- As Norges Bank gears up for its upcoming meeting on Thursday, all eyes are on the new rate path.
- It’s widely expected that the central bank will maintain its current rates, putting the spotlight squarely on the future direction of rates.
- Here’s what we can discern from the key components feeding into Norges Bank’s rate path model ahead of the decision.
CX Daily: Alipay and WeChat Pay’s Smaller Peers Struggle Amid New Crackdown
- Payment / In Depth: Alipay and WeChat Pay’s smaller peers struggle amid new crackdown
China-Australia / Chinese Premier hails warming ties during Australia trip
Jobs / Higher wages, fewer jobs: The changing face of China’s manufacturing sector
UK Services Air-Lifts Dovish Pressure
- UK services CPI inflation exceeded expectations again by only slowing to 5.68%, ruling out a June rate cut by being 0.4pp above the BoE’s forecast, but maybe not much more.
- Headline CPI inflation is only tracking 5bps higher, and underlying measures are slowing, albeit not to target, while volatile airfares drive most of the latest upside.
- The BoE will probably feel confident enough in its subdued forecast to keep an August cut alive. We still see that as premature but believe the BoE will do it regardless.
US FOMC Projections Too Pessimistic; Two Rate Cuts Likely in 2024 as Inflation Abates
- FOMC signalled in Mar’24 that 2.6%YoY core PCE inflation would allow three rate cuts in CY24. They now expect core PCE inflation of 2.8%YoY (above the Apr’24 reading of 2.75%YoY).
- Core CPI inflation rose 0.2%MoM in May’24, suggesting a similarly benign outcome for core PCE. US M2 contracted for 16 months (Dec’22-Mar’24), an unprecedented tightening compensating for M2-excesses of Mar’20-Feb’22.
- Aggressive QT in Mar-Apr’24 successfully squeezed out inflation, and core PCE inflation will likely stay below 2.6%YoY in H2CY24, allowing two 25bp cuts in the Fed Funds rate in CY24.
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