In today’s briefing:
- Success of China’s Stimulus Measures Hinges on Improvement in Labour Market Conditions
- Examining the Bear Case for China
- Thinking the Unthinkable: Israel-Iran War
- China CPI Prediction Model: Methodology and Sep 2024 Forecast
- Copper Tracker Oct 7th, 2024: Copper Set to Pass 10,000 USD/Ton
- Iron Ore Tracker (7-Oct-2024): Sentiment Swing With China Stimulus
Success of China’s Stimulus Measures Hinges on Improvement in Labour Market Conditions
- The People’s Bank of China reduced its policy rate, lowered reserve requirements, and introduced a new lending facility to support the equity market.
- New fiscal policy measures were announced to help consumers, but large stimulus programmes invariably incur legacy issues that can subsequently impede the capacity of governments to counter faltering economic activity.
- Improved Chinese equity prices need sustainment by higher corporate profits, courtesy of faster economic growth. Improved labour market conditions are essential for a recovery in consumer confidence and economic activity.
Examining the Bear Case for China
- Change in strategy by the Chinese authorities mean this is more than a trade
- Sentiment, valuations and positioning are still supportive despite the rally
- Overbought conditions in the very short-term and the technical picture is mixed
Thinking the Unthinkable: Israel-Iran War
- Part of investing is proper risk management and the pricing of risk.
- While war in the Middle East is not our base-case scenario, we believe the odds of an Israeli attack on Iran are higher than the market expects.
- The market is underpricing the risk of war and investors should be aware of this tail risk and position themselves accordingly.
China CPI Prediction Model: Methodology and Sep 2024 Forecast
- We are building our in-house proprietary China CPI Prediction Model, based on the paper “Forecasting China’s Consumer Price Index (CPI) Based on Combined ARIMA-LSTM Models”* by Yu Liu.
- This study aims to construct an efficient consumer price index (CPI) forecasting model to provide policymakers, investors, and businesses with more accurate forecasts of future price levels and inflation trends.
- In this study, a combined model that integrates autoregressive integrated moving average (ARIMA) with long short-term memory (LSTM) networks is introduced.
Copper Tracker Oct 7th, 2024: Copper Set to Pass 10,000 USD/Ton
- With China’s slew of stimulus measures released last month, we are confident that copper prices will break 10,000 USD/ton soon.
- The COMEX spread with LME has now started to build up to over 300 USD/ton, signaling that macro funds are getting bullish on copper.
- We continue to like the equity route to play copper with pure plays like Southern Copper (SCCO US) , Ivanhoe Mines (IVN CN), and Teck Resources (TECK US).
Iron Ore Tracker (7-Oct-2024): Sentiment Swing With China Stimulus
- A slew of policies announced by the Chinese government led to a short squeeze in the iron ore market, with prices moving up 20% from the lows to 108 USD/ton.
- Mill margins inflected into positive territory, and iron ore, after gapping below its band of 95-130 USD/ton for the last 3.5 years, is now back in its normalized range.
- While the current move was unexpected, we expect the euphoria to last a while as more clarity on the stimulus emerges and ore prices tick up short-term.
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