Daily Brief Macro: Global Commodities: Gold & Silver—Citius and more

• Fed is expected to start easing cycle in September, potentially leading to a bullish trend for gold and silver
• Structural factors such as US fiscal deficit concerns, central bank reserve diversification, and geopolitical risks could continue to support gold prices
• Chinese physical gold demand has cooled, but other factors like western ETF demand and potential Indian import duty reduction may provide support for gold prices

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• China could be the disinflationistas big hope from here. The export price index is not yet picking up in China despite some signs of early increases.
• The potential re-inflation story will likely be forewarned in the Chinese PPI again. There are some early signs of improvement in Shipping to be seen.
• The bottom-line is that we are still playing the metals space from the short side, while we don’t hold any energy longs despite it being increasingly attractive from a risk/reward perspective.

• We are likely approaching the point where the squaring party triggered by USDJPY is starting to impact market pricing and sentiment in nonsensical ways, as deleveraging is ongoing, even if the dust has settled a little.
• Markets are pricing a small “insurance premium” for the September FOMC meeting, leaving more than 25bp in the forward pricing despite a week of mostly hawkish surprises last week.
• Everything this week is about watching USDJPY price action again, as it has the potential to impact all assets.

• Despite setbacks in manufacturing and exports, Singapore’s cyclical position is likely to stabilize on the back of improved investment flows and easing inflation. 
• This has allowed the monetary policy to keep its policy settings unchanged as it maintains a “wait-and-see” stance pending external developments. 
• Policymakers will thus focus on long-term economic strategies to bolster competitiveness and resilience, including finalizing the upcoming Singapore-Johor special economic zone. 

• Historical analysis suggests that previous lows in yen or highs in dollar yen may be difficult to recapture after significant technical damage.
• The yen strength is influenced by wide US minus Japan real policy rate differentials, skewing historical results in a more yen bearish direction.
• Expectations for the upcoming BOJ meeting include a 15 basis point rate hike and a halving of bond purchases, leading to dispersion of views among investors on the timing of rate hikes.

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• A lack of institutional investor interest in Hong Kong is a positive for once as the market is less influenced by international flows
• Investors are disappointed by the lack of short-term stimulus plans after the Third Plenum session
• What to do after the 17,500 level breached on the Hang Seng index?

• Having suffered a setback in the 2024 Lok Sabha elections, the government used the Union Budget to address voters’ economic gripes while keeping coalition partners happy.   
• While it is positive that the government did not resort to populist giveaways in reaction to the election results, robust growth could have enabled a faster pace of consolidation.
• The focus on encouraging first-time hiring is welcome, but cuts in education and health spending suggest a lack of a coherent strategy to improve human capital. 

• Real GDP accelerated to 2.8%QoQsaar growth in Q2CY24 (from 1.4% in Q1), with sharp QoQ acceleration in PCE, investment and government spending, and restocking after three quarters of destocking. 
• In YoY terms, real GDP grew 3.1%YoY in Q2CY24 led by 5.8%YoY growth in gross investment. Core PCE inflation edged up to 2.63% YoY in Jun’24 (from May’s 2.62%YoY). 
• The annualized rise in core PCE in H1CY24 was 3.33%, with only one month (May’24) of less than 2%MoM (annualized) increase — insufficient to allow a rate cut before Sep’24. 

• Euro area GDP growth remained at 0.3% q-o-q in Q2, defying expectations for it to slow like the surveys. Germany’s surprise fall may disappear as actuals replace estimates.
• Sustaining something close to potential growth without a shallow recession to recover suggests cyclical pressures are stable, like the unemployment rate.
• Effective monetary conditions do not currently look tight in the Euro area. Rate cuts to offset belated passthrough are inherently more limited and at risk of reversal.

• SEC’s approval of nine spot ETH ETFs on 23/July led to an unexpected 9% price drop in ETH, marking a “sell-the-news” event.
• Dominant outflows from Grayscale Ethereum Trust, totaling -1,723.5 net flows, significantly impacted market dynamics, overshadowing inflows into other ETFs and contributing to selling pressure.
• Changes in options market post-ETF launch saw put implied volatility increase and call volatility decrease, indicating a shift toward defensive trading strategies.