Daily Brief Macro: Positioning Watch – Markets Still Favoring West Over East and more

• Hello everyone, and welcome back to our positioning update.
• The big theme in markets currently is how markets are responding, positioning-wise, to the dwindling momentum in Chinese equities, and which geographies that money is being moved to now that the China story is slowly but surely fading.
• Today’s briefing on the outlook for the property market was, once again, a disappointment, and it seems like China is boosting supply to solve a demand problem, likely because they are focusing more on their annual 5% GDP growth target than on solving the structural issues at hand.

• Misconception that China’s stimulus was a panic move due to economic crisis
• Obsession over the size of the stimulus package without considering policy approach
• China aimed to boost confidence and avoid doom loop through stimulus measures, including support for the stock market

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• The USD has regained ground alongside USD rates since the 50bp from the Fed in September, which reignited both growth- and inflation expectations simultaneously.
  
• The conundrum around Fredi9999 pushing Polymarket towards making Trump a large election leader in betting markets is likely partially (but obviously not fully) linked to this surge of the USD and USD inflation expectations as well, and we note that bond yields and inflation expectations have disconnected from traded commodity markets over the past 2-3 weeks accordingly. 
• The stronger USD has wreaked havoc with cross-market positioning in many ways, with USD still being underweight across our positioning gauges, but we doubt that the inflation story has got legs here unless it is a clean sweep for The Donald in early November, given the current price action in inflation-linked markets.

• The US elections, excluding the Senate, are currently very close.
• There are four potential outcomes, each with a probability of 20% or higher.
• The scenarios suggest that a Trump administration would have a greater ability to implement its agenda than a Harris administration.

• The past week saw insights on Siloam International Hospitals (SILO IJ), Global Digital Niaga (BELI IJ), Delfi Ltd (DELFI SP), Bangkok Bank (BBL TB), and Dyna Mac Holdings (DMHL SP) 
• There were also macro insights on Indonesia and Thailand and further insights on Sai Gon Cargo Service (SCS VN), Top Glove Corp (TOPG MK), and Airports of Thailand (AOT TB).
• The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated substantive, and actionable insights, macro and equity bottom, from across Southeast Asia.

• RBI’s failure to cut the policy rate at its last two policy meetings is a policy error. Although vegetables caused a headline-inflation spurt, core inflation moderated to 2.7%YoY in Sep’24. 
• High real interest rates have caused real GDP to decelerate to 6.7%YoY in Apr-Jun’24, and industrial output to decline in Aug’24. The policy error is hurting the economy. 
• Cleverer stance would be to take every opportunity to cut rates when headline inflation is at/below target. When vegetable prices hold policy hostage, it hits investor confidence. (Evidence: FX Reserves).  

• Inventory lowest since February 2024
• Arbitrage widens for African and Indonesian rubber
• Expansion in imports & exports in August

• China’s Corn Under Extreme Weather Threat China’s corn production is currently under pressure due to extreme weather events in the country.
• Still, as it seems this might not be enough to even lift prices up a little bit. Local prices have ticked higher since the end of September, but they’re still close to four-year lows.
• Stockpiles of corn are plentiful, and demand is currently sluggish as the second-largest economy of the world battles its own economy demons at the moment.

• WTI futures dropped 9.1% for the week ending 18/Oct, driven by easing Middle East tensions and mounting concerns over China’s slowing economy.
• WTI options Put/Call volume ratio remained flat at 0.52 compared to last week (11/Oct), as put volume dropped by 22.6% WoW and call volume fell by 21.3%.
• WTI OI PCR fell to 0.74 (18/Oct) from 0.76 last week. Call OI fell by 13.2% WoW, while put OI dropped by 15.4%.

• US natural gas prices dropped 14.2% for the week ending 18/Oct, marking a third consecutive weekly decline due to milder winter forecasts and the lingering effects of Hurricane Milton.
• Henry Hub Put/Call volume ratio shot up to 1.54 (18/Oct) from 0.69 (11/Oct) the previous week as put volumes increased by 81.3% WoW, while call volumes fell by 18.4%.
• Put OI rose for contracts expiring in November, April, and May, while call OI increased for December, January, February, and March expiries.