Daily Brief Macro: China Liquidity Watch: USD easing allowed China to ease and more

• The USD market will be flooded with liquidity in Q4, accompanied by rate cuts, providing Chinese authorities with a window of opportunity to ease policy.
• However, there is one issue: CNY liquidity is tightening now.
• Welcome to our weekly China Watch, where we examine Chinese assets through the lens of Western investors and markets.

• Hello everyone, and welcome back to our weekly positioning watch.
• The moves from last week continue with China still being super bid going into this week, and the flows that we are seeing into Chinese equity ETFs are becoming almost hilarious now, as everyone and their mother is piling into the China story at current junctures.
• The weekly inflow is at 3.5 bn USD on a weekly basis now, so we’re talking a 5-6 std.

• Israel will counteract Iran,  prompting a further missile attack by Iran.Our bias remains that Israel is to have a buffer zone in southern Lebanon and not fight a prolonged war.   
• This limits the economic fallout globally and on oil prices. The U.S. presidential election will move markets but not until the result after Nov 5.  The bigger issue remain rate cuts.  
• The market is underestimating cumulative BOE easing prospects however, while not discounting the 75bps of BOJ rate hikes we see by mid-2025. 

• Take aways: Risk premium in crude oil compressing due to Israel calling Iran’s game of chicken. Fade the strength in assets connected to the real economy.
• Supply is still the biggest risk in crude oil. Strike risk in the US means Mexico is an opportunity.
• Israel launched ground operations in southern Lebanon overnight, aiming to push Hezbollah away from areas near the border.

• Rising tensions in the Middle East increase focus on geopolitical risks, which are hard to hedge. The UAE’s neutrality has made it a natural safe harbour, and this remains true.
• Dubai property is an investible hedge, with price inflation correlated to the geopolitical risk level because it attracts sticky capital inflows whenever risks crystallise.
• Natural leverage through off-plan payment schedules lowers the capital intensity of this diversifying asset while also presenting families with an attractive political “plan B”.

• EU commission proposes longer phase-in time  
• Some tire makers are delaying EUDR rubber booking  
• EU’s faltering EV market is a concern  

• Introduction to new investment strategy: activism in Japan
• Potential for high returns with unique approach to investing
• Evolution of opportunity in Japan and potential for success due to increasing pro-shareholder culture

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• 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

• China’s markets may see upward movement, with economic recovery likely in the second half of 2025.
• September PMIs were soft across most of Asia, with Vietnam disrupted by a typhoon.
• Japan and Thailand face weak industrial production, prompting a recommendation to reduce exposure.

• For the week ending 27/Sep, US crude inventories rose by 3.9m barrels, contrasting expectations of a 1.5m barrel drawdown. Gasoline stockpiles also unexpectedly grew.
• US natural gas inventories rose 55 Bcf for the week ending 27/Sep, lower than analyst expectations of a 59 Bcf buildup. Inventories are 5.7% above the 5-year seasonal average.
• Chevron, Shell, Halliburton, and Schlumberger have all experienced target price downgrades, while Exxon Mobil received an upward revision to its target price. Notably, Goldman Sachs downgraded Occidental to Neutral.