In today’s briefing:
- Four Reasons To Be Tactically Bullish
- The Heat Is On: News Flow and Sentiment in CHINA / HONG KONG (August 16)
- Overview #7 Speculative Positioning Review
- Back to a Soft Landing
- Bank of Japan and Next Liberal Democratic Party Leader Must Create a New Nexus
- Iron Ore Tracker (19-Aug-2024): Major Testing Point of 95 USD/Ton, Broken For Iron Ore
- Copper Tracker August 19th, 2024: Markets Volatile, Accumulate Good Copper Names On Weakness
- FOMC Minutes Preview: Increasingly Balanced Risks
Four Reasons To Be Tactically Bullish
- The U.S. stock market is poised for a period of continued strength.
- Four reasons to be tactically bullish on stocks: price momentum; a sentiment reset from bullish to caution; the historical bullish record of VIX spikes; and positive internals.
- We continue to favour non-Magnificent Seven leadership for the next bull phase.
The Heat Is On: News Flow and Sentiment in CHINA / HONG KONG (August 16)
- Japan equity ETF flows have not recovered from the carry trade sell off. Hong Kong Southbound Connect flows continue to be positive this month.
- Qifu Technology (3660 HK) , Q Technology Group (1478 HK) and JD Logistics (2618 HK) all advanced on strong 2Q earnings announcements.
- Tencent Music Entertainment Group (1698 HK) disappointed on earnings and monthly user numbers. Country Garden Services (6098 HK) declined in anticipation of a large drop in earnings in 2Q 2024.
Overview #7 Speculative Positioning Review
- A review of recent events/data impacting our investment themes or outlook
- Expectations for future US interest rate cuts get dialed back – JPY impact
- CFTC data shows speculative froth has come out of some markets
Back to a Soft Landing
- Our assessment of the U.S. economy is a “not too hot, not too cold” Goldilocks scenario that’s supportive of risk assets.
- We have an economy that’s showing decelerating, but not recessionary, growth and the start of a rate cutting cycle.
- Even though forward P/E valuations are somewhat elevated compared to historical norms, this should not be a concern as interest rates fall and EPS growth continues.
Bank of Japan and Next Liberal Democratic Party Leader Must Create a New Nexus
- Looming political changes in Japan could impact the conduct of monetary policy, following earlier and intense pressure to arrest the sharp decline in the yen during 2024.
- The four contenders for becoming the new Liberal Democratic Party (LDP) leader do not all share the same views on the BoJ’s attempt to normalise policy settings.
- An extended policy adjustment pause by the BoJ could be detrimental to its credibility, analogous to what befell the Fed after the infamous 2013 taper tantrum.
Iron Ore Tracker (19-Aug-2024): Major Testing Point of 95 USD/Ton, Broken For Iron Ore
- Iron ore found no support at the 95-100 USD/ton range for the first time in a while and broke through it, gapping down 8.8% WoW to 92 USD/ton.
- This break is a major short-term bearish signal for iron ore prices, as market participants would lose confidence in the theory of cost support at 95-100 USD/ton.
- TSF data and mill margins ( -575 RMB/ton) from China also do not inspire much confidence in the near-term outlook for iron ore.
Copper Tracker August 19th, 2024: Markets Volatile, Accumulate Good Copper Names On Weakness
- With increasing market volatility, base metals continue their rocky weekly performance. Copper is up marginally, taking it past 9000 USD/ton.
- Copper inventories continue to pile at the exchanges, with ~500k tons combined at Comex, LME, and Shanghai, up almost 7% in the last two weeks.
- We believe accumulating names like Southern Copper (SCCO US) and Ivanhoe Mines (IVN CN) with good long-term fundamentals is a great strategy.
FOMC Minutes Preview: Increasingly Balanced Risks
- FOMC minutes from the July 31 meeting are due on August 21
- We expect the minutes will show a cautious tone on inflation, needing to see more data before easing, but increasing concern over rising unemployment, which July non-farm payroll data show.
- Still, the tone on inflation is likely to be cautious enough to suggest that a 50bps move in September remains unlikely.
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