In today’s briefing:
- EM Watch: Why China is trying to wreak havoc on your Gold longs
- Asset Allocation Watch – What to buy in the upcoming Fed cutting cycle?
- As Sales Surge, Electric Trucks Could Be Here for the Long Haul
- JPY Movement Under Fed Rate Cut and BOJ Rate Rise
- HEW: Rates Go Your Own Way
EM Watch: Why China is trying to wreak havoc on your Gold longs
- Welcome to our Weekly EM editorial.
- In light of a likely Fed cutting cycle commencing in September, we will analyze why this cycle is anything but ordinary and how the EM price cycle may disrupt standard playbooks on trading a US cutting cycle.
- Key Takeaways: Gold is likely to perform (much) worse than during a typical Fed cutting cycle. China is actively trying to cool down the gold market. The EM inflation cycle is indicative of what’s upcoming in DM markets into 2025. The Copper to Gold ratio is a screaming “buy” given this context.
Asset Allocation Watch – What to buy in the upcoming Fed cutting cycle?
- Markets are currently busy preparing for the upcoming cutting cycle from the Fed, expected to start in September.
- The simple playbook is often used when markets face a “high probability event,” and markets are now acting as if they know what’s ahead.
- A Fed cutting cycle is triggered by a recession; therefore, buy bonds, sell risk assets, and buy gold, etc.
As Sales Surge, Electric Trucks Could Be Here for the Long Haul
- Trucks /In Depth: As sales surge, electric trucks could be here for the long haul
- Drones /: China adds drone components with military applications to export blacklist
- PMI /: China’s manufacturing shrinks for first time in nine months as demand falls, Caixin PMI shows
JPY Movement Under Fed Rate Cut and BOJ Rate Rise
- JPY has gained momentum since prospect of Fed rate cut rises and BOJ raised interest rate.
- Yen has depreciated by 32% over the past 4 years. As dollar/yen strengthens to over 150, we believe Yen will recover to 110 level as US Treasury Yields move lower.
- As US yields lower, the USD bond held by BOJ will move higher and Bank of Japan will be forced to sell USD bond and USD to rebalance their portfolio.
HEW: Rates Go Your Own Way
- There was a significant policy divergence over the past week, with the Bank of England cutting rates, the Bank of Japan hiking rates, and the Federal Reserve subtly indicating a potential rate hike in September. Euro Area inflation also increased, which was unexpected, but was in line with our forecast.
- Despite upcoming decisions from the Reserve Bank of Australia, Mexico and Peru, macro events may not be the focus next week due to a lack of data releases on the calendar.
- There will be a flurry of data releases from the UK in the middle of the following week, and an updated monthly publication will be released.
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