In today’s briefing:
- Navigating Rocky & Volatile October After a Crushing September in US Equities
- Taiwan: New Political Forces in the Presidential Poll
- 5 Things We Watch – Manufacturing, Natural Gas, JOLTS, BoJ & China
- China Watch – Foreign Direct Investment & Capital Controls
- Changing Dynamics of the Soybean Crush
- Oil Watch: OUCH!
Navigating Rocky & Volatile October After a Crushing September in US Equities
- September Effect refers to a month when equity returns gets crushed. The September Effect is followed by the sharpest month of volatility in October.
- Does the September effect prevail in the current millennium? Since start of 2000, September indeed is the worst month for S&P 500 stocks with average returns of -1.8%.
- History points to a positive upward bias during last 3 months. Q4 outlook this time is beset with head winds. Danger lurks in many places.
Taiwan: New Political Forces in the Presidential Poll
- While the DPP’s Lai remains the frontrunner, voters are showing signs of discontent with the ruling DPP due to difficult economic conditions and domestic policy.
- The strong showing of the TPP suggests that the electorate is receptive to its emphasis on bread-and-butter issues and its third-way approach to relationships with China.
- Beijing will adopt a “wait and see” approach to avoid spooking Taiwanese voters. It may also recalibrate its strategy to account for the new political dynamics in Taiwan.
5 Things We Watch – Manufacturing, Natural Gas, JOLTS, BoJ & China
- Happy Wednesday, and welcome back to our 5 Things We Watch, where we as always run through 5 interesting topics in global macro relevant for the current and near-term market actions.
- We’ll as usual be short and concise, covering what has already happened this week, as well as what will happen next.
This week we are watching out for the following 5 topics within global macro: Manufacturing, Natural Gas, JOLTS, BoJ, China
China Watch – Foreign Direct Investment & Capital Controls
- Welcome back to another piece on the ongoing turmoil in China, which seems to have slipped headlines over the last weeks as USDCNY has stabilized around the 7.30 level, which seems to be the line in the sand for now.
- Xi and PBoC currently stand in a big dilemma, as a weaker exchange rate incentivizes domestic capital flights from CNY to USD amidst a domestic consumption crisis and real estate hovering at recessionary levels.
- To cope with capital flights, PBoC controls imports and exports of various commodities on the domestic market, forcing domestic banks and other players to keep their trading activity in CNY by strengthening the Yuan.
Changing Dynamics of the Soybean Crush
- Soybeans are crushed into soy oil and soymeal. The crush represents the Gross Processing Margin of Soybean.
- The crush has been increasingly affected by the price of soy oil compared to soymeal. Ample meal supply suppresses its prices.
- Meanwhile, soy oil prices are buoyed by supply concerns in the US as it is increasingly used to produce biodiesel.
Oil Watch: OUCH!
- It is no secret that we turned energy bullish early in the summer with pretty accurate timing and made a nice run based on being ahead of the crowd on the call.
- We have kept various energy proxies alive in our portfolio and were stopped out of our Refiners spread earlier today due to a material sell-off on the back of the weekly EIA report.
- The EIA report is usually not a >1-2 sigma market mover, but oh boy it moved markets today and we find very good reasons why when assessing the data.
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