In today’s briefing:
- Market Watch: Forget about emergency cuts. Here is what the Fed will do next!
- Asia Economics: The Market Panic Does Not Alter Medium-Term Trajectory
- Metals Decline With Risk Sentiment and Fear in Overdrive
- Great Game – Iranian attack in the next few days?
- Quant Signals – Here is THE steepener to own in a cutting cycle!
- Energy Cable: Why Chinese Flows Govern Gold Markets, Not Western Cutting Cycles
- China: “Confusion Will Be My Epitaph”?
- Dollar Swings Lower As Recession Risks Pervade; JPY Surges
- Iron Ore Tracker (07-Aug-2024): Port Arrivals High, Inventory Piles up at 35 Ports
- RBA Cash Rate 4.35% (consensus 4.35%) in Aug-24
Market Watch: Forget about emergency cuts. Here is what the Fed will do next!
- Good evening from Europe.
- I will keep this analysis short and sweet as I know you are all trying to deal with these nasty markets and time is of the essence.
- We have thankfully made our way through this turbulence clearly in the money, but we are starting to see interesting counter-trends arising now.
Asia Economics: The Market Panic Does Not Alter Medium-Term Trajectory
- Fears of a US recession and higher Japanese rates have sparked a market panic that may hurt Asian economies and markets in the very near term.
- However, the Asian region should weather the storm so long as the US avoids a recession, as we believe it will.
- Not all Asian central banks will follow the Fed in cutting rates. Improved growth in Asia and stable inflation yield a different set of tradeoffs than that facing the US.
Metals Decline With Risk Sentiment and Fear in Overdrive
- Gold, silver, and copper futures fell by 3%, 6.7%, and 4.6% respectively on Monday amidst recession fears
- Gold and silver options showed bullish sentiment with significant call option buildup, while copper options saw mixed activity with high put interest in the front-month
- Implied volatility surged for gold, silver, and copper, with copper IV increasing by 7 percentage points to 27% post non-farm payroll report
Great Game – Iranian attack in the next few days?
- Welcome to this week’s Great Game! I know that geopolitics are probably the last thing you want to have to consider these days, but there are some scenarios we need to cover, so here’s a quick rundown of the most important geopolitical risks right now: Iran-Israel stand-off
- Situation:As discussed last week, the tensions in the Middle East are increasing.
- We are still awaiting the response from Iran following the assassination of Hamas leaders inside Iran last week and the latest assessments point to attacks on Israel in a few days.
Quant Signals – Here is THE steepener to own in a cutting cycle!
- We have examined the quantitative data surrounding the cutting cycle to optimise the curve steepener trade for hit ratios, carry returns, and ‘max contributions.’
- This is the steepener trade you want to own in a cutting cycle!
- In our Saturday Portfolio Watch, we discussed the potential value in steepeners and promised to more thoroughly backtest the curve in order to find the optimal steepening expression in a cutting cycle environment.
Energy Cable: Why Chinese Flows Govern Gold Markets, Not Western Cutting Cycles
- Take aways: China will be a key player for gold markets. MBS suffering even more as crude tumbles. High frequency indicators don’t scream recession in the US.
- Hi and welcome to this week’s Energy Cable! We will do a short note this week as many of you are mostly trying to extinguish fires due to the sell-offs in markets.
- We have two major themes regarding commodities that we’ll focus on today, namely gold and crude.
China: “Confusion Will Be My Epitaph”?
- China’s economic trajectory is clarified by Xi Jinping’s statement regarding the Third Plenary’s outcome.
- Xi Jinping frequently expresses his determination to make China technologically self-reliant.
- This self-reliance in technology is seen as a hedge against external threats.
Dollar Swings Lower As Recession Risks Pervade; JPY Surges
- DXY weakened by 0.8%, Yen surges by 6%, and Euro by 0.75%. Recession fears, BoJ rate hikes and subsequent unwind of the yen carry trade drove forex market volatility.
- Implied volatility (IV) for JPY options increased sharply from early July, with a surge following the BoJ rate hike and non-farm payroll report. EUR options IV reached a one-month.
- Euro options saw a large buildup of calls for near-term expiries and a significant increase in puts for September expiries, reflecting mixed market sentiment.
Iron Ore Tracker (07-Aug-2024): Port Arrivals High, Inventory Piles up at 35 Ports
- Iron ore bounced from the 100 USD/ton level and has maintained a rangebound level between 95 and 130 USD/ton for the last three years.
- Inventories at the ports continued to increase, surpassing 150 million tons, representing about 38 days of inventory (normalized levels around 35 days).
- After Capital Group’s recent selldown, Fortescue Metals (FMG AU) looks attractive (with a trailing dividend yield of 11% and 6.5x PE) and could be worth exploring.
RBA Cash Rate 4.35% (consensus 4.35%) in Aug-24
- The RBA maintained its policy rate at 4.35% amid persistent inflationary pressures, aligning with the economic consensus and highlighting the challenges in achieving its inflation target promptly.
- Future policy decisions will hinge on domestic consumption trends, labour market conditions, and global economic uncertainties, with the RBA emphasizing a data-driven approach to sustainably ensure inflation returns to the target range.
- The RBA remains vigilant to upside inflation risks, prioritizing inflation targeting within its mandate, and is prepared to adjust policy settings based on evolving economic data and risk assessments.
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
💡 Before it’s here, it’s on Smartkarma
Sign Up for Free
The Smartkarma Preview Pass is your entry to the Independent Investment Research Network
- ✓ Unlimited Research Summaries
- ✓ Personalised Alerts
- ✓ Custom Watchlists
- ✓ Company Data and News
- ✓ Events & Webinars
