In today’s briefing:
- GEM Funds Underperform in Q3.
- The Week at a Glance: No Bazooka from China (Yet) – Over to You, ECB
- Details to Follow for China Fiscal Stimulus
- Tactical Trading – JPY Weakness Has Likely Run Its Course for Now
- US Rig Count Rises After Falling for Three Consecutive Weeks
- [IO Options Weekly 2024/41] IO IV Surges and Put Activity Rebounds Following Golden Week
- [US Nat Gas Options Weekly 2024/41] Henry Hub Extends Decline as Hurricane Milton Destroys Demand
- [US Crude Oil Options Weekly 2024/41] China’s Weakness Poses Risk to WTI’s Recent Two-Week Gains
- Hurricane Milton and Orange Juice Prices // CTA Update
- UK Cycle Tightens As Policy Eases
GEM Funds Underperform in Q3.
- Active EM Funds delivered an average return of +6.85% in Q3, underperforming the iShares MSCI Emerging Markets ETF by 0.83%, with 38.8% of funds beating the index.
- Morgan Stanley Developing Opportunity and Aikya Emerging Markets topped the performance charts for the quarter.
- Underweights in Alibaba Group Holding and Meituan, and overweights in SK Hynix and cash holdings hurt performance.
The Week at a Glance: No Bazooka from China (Yet) – Over to You, ECB
- The recent Chinese fiscal briefing was underwhelming, as expected.
- China continues to focus on supply-side measures, which remain ineffective in addressing the pressing need for increased demand.
- Instead of stimulating consumption across the economy, China is attempting to incentivize asset demand and reshuffle credit profiles—approaches unlikely to produce meaningful results.
Details to Follow for China Fiscal Stimulus
- Details of the extra central government spending/scaled up local authority purchases of unsold complete homes for affordable housing should be seen late October/early November from the National People Congress.
- We estimate Yuan1.5-2.0trn of extra spending, which leads us to increase the 2025 GDP forecast to 4.5% from 4.0% — fiscal impact on 2024 will likely be very small.
- The more active government policy stance, also reduces the risk of a harder landing (circa 3%) to 10-15% from 20-25% in 2025.
Tactical Trading – JPY Weakness Has Likely Run Its Course for Now
- With US bonds oversold, we expect the Japanese Yen to strengthen
- Supplementary Budget from the LDP as new cabinet’s approval rating drops
- The broad Japanese indices will struggle here as this plays out
US Rig Count Rises After Falling for Three Consecutive Weeks
- The US oil and gas rig count rose by one to 586 for the week ending 11/Oct, marking an increase after falling for three consecutive weeks.
- The US oil rig count increased by two to 481. Meanwhile, gas rigs decreased by one to 101, after gaining six rigs over the last two weeks.
- For the week ending 11/Oct, US energy producers added six rigs in Texas and one in Oklahoma but cut two each in Pennsylvania, Louisiana, and New Mexico.
[IO Options Weekly 2024/41] IO IV Surges and Put Activity Rebounds Following Golden Week
- SGX IO Futures declined by $1.94/ton over the week, closing at $106.21/ton on October 11th, with prices ranging between $103.05 and $115/ton.
- DCE premium over SGX surged to 10% on 8/Oct as DCE reopened after Golden Week, but the spread narrowed to 4.8% by 11/Oct. SGX underperformed DCE early in the week.
- Weekly options volume surged 188%, dominated by puts with a 1.04 put/call ratio, concentrated on November expiries and key strikes at 100 and 105.
[US Nat Gas Options Weekly 2024/41] Henry Hub Extends Decline as Hurricane Milton Destroys Demand
- US natural gas prices fell 7.8% for the week ending 11/Oct, marking a second straight weekly decline as Hurricane Milton reduced electricity demand, driving down Henry Hub prices.
- Henry Hub Put/Call volume ratio fell to 0.69 (11/Oct) from 0.98 the previous week as put volumes fell by 27.3% WoW, while call volumes rose by 2.8%.
- Put OI increased for contracts expiring in November and April while call OI rose for expiries in December, January, February, and March.
[US Crude Oil Options Weekly 2024/41] China’s Weakness Poses Risk to WTI’s Recent Two-Week Gains
- WTI futures rose by 1.6% for the week ending 11/Oct, as the simmering tensions in the Middle East outweighed persistent demand concerns.
- WTI options Put/Call volume ratio fell to 0.52 from 0.64 (04/Oct) as put volume dropped by 50.9% WoW while call volume fell by 39.8%.
- WTI OI PCR was unchanged at 0.76 compared to last week. Call OI rose by 5.7% WoW, while put OI grew by 5.8%.
Hurricane Milton and Orange Juice Prices // CTA Update
- CTA Update Last week, the research division of UBS shared an update on the positioning of CTAs.
- Contrarian’ trades: bullish Energy, Cattle Feeder, Lme Lead and Lme Nickel, bearish Coffee, Cocoa, Platinum and Palladium
- Go with momentum’ trades: bullish Lme Tin, Copper, Gold and Lean Hogs, bearish Soybean, Soybean Meal, Wheat and Corn Hurricane Milton and Orange Juice Prices Orange juice futures rose as Hurricane Milton approached Florida throughout the week.
UK Cycle Tightens As Policy Eases
- UK unemployment dropped by another 16bps in August to 4.0%, sustaining a 0.2pp fall on last year. Short-term unemployment looks even tighter as demand trends resiliently.
- Resurgent employment and hours worked hawkishly drive the cyclical tightening while redundancies remain low and weekly vacancies trend slightly higher.
- Slowing wage growth provides an excuse for the BoE to cut again in November but not to accelerate easing nor extend it far. A policy reversal may be needed in 2025.
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