Daily Brief Macro: HK/China: THE BIG SHORT (SQUEEZE) and more

• Although the tech sector in Hong Kong has surged over the last couple of weeks there appears to be minimal short covering in US-listed China tech names.
• The performance of the “Magnificent 5” China tech names has led the rally as we outlined in Hong Kong: The Glass Is Half Full, Time to BUY Beta .
• The combination of of large outstanding short positions and a significant underweight of HK/China in international funds will lead to further upside in the tech sector.

• S&P 500 futures down 33 basis points, showing signs of exhaustion
• US dollar index up 67 basis points, driven by euro reversal
• China’s unexpected outperformance in equities may be linked to US stimulus actions and coordination

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• Just a few hours after the release of a much stronger-than-expected jobs report, Goolsbee of the FOMC highlighted the risk of undershooting inflation in the US.
• While Goolsbee is a dovish, soft-leaning member of the committee, it goes to show that you don’t turn around a supertanker like the Fed just because the NFP printed a bit better than expected.
• The Fed has set a direction, and it will take a lot to convince them not to continue cutting interest rates back toward neutral, around 3%.

• Overall, the warning from slow real credit growth on reduced credit supply and demand is the main lesson from the Asia crisis 1997-98.  
• China High FX reserves; low borrowing overseas and dominance of domestic investors in Yuan markets argues against a currency crisis. 
• Asia widespread banking crisis are also unlikely to repeat in China, though we see growing stress among rural banks that in the worst case could be a rural banking crisis.  

• Brent oil futures trading in line with fair value, with bullish bias in options, as volume of bullish calls hit record high
• Ongoing conflict between Israel and Iran raising concerns about further escalation, with recent attacks and strikes indicating potential for heightened tensions
• Global oil inventories are significantly lower than in previous years, potentially impacting market dynamics and prices as demand and inventory levels play a key role

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• US economic growth has shown exceptional resilience, with a strong payrolls report and other positive macroeconomic factors
• Higher US yields may put pressure on dollar shorts and lead to a potential capitulation in those positions
• Canadian dollar baskets may outperform in this environment, with higher US yields benefiting the CAD

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• Israel is likely to retaliate against Iran’s recent missile attack, potentially escalating the situation.
• Israel’s aim may be to fundamentally shift the regional balance of power.
• The threat to oil due to this conflict may be overstated.

• Option prices are a valuable tool for studying market trends and risk premium
• Gold’s unique properties make it a valuable asset for portfolio diversification and defense against government chaos
• The oil VIX index, OVX, provides insights into market risk and volatility in the oil market, with potential implications for broader market trends

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• The Federal Reserve’s aggressive easing is not in line with the resilient data.
• There is still a high level of underlying wage inflation.
• There are expectations of 25bp cuts at the upcoming ECB, BoE, and Fed meetings, but these cuts are likely to cease early in 2025, mirroring the events of 1998. Excessive easing at the start can lead to economic bubbles.

• NR prices surge over 33% YoY during April-August 2024
• In FY 2024-25 Q1, operating margin of top five tire firms falls ~200 basis points to 14%
• NR prices in downward trend in Oct amid a surge in supply