In today’s briefing:
- The Carry Trade as Risk Driver
- The Fed: A Political Institution Prepares Financial Markets for Lower Interest Rates
- Several Factors Supporting Gold Price
- Copper Tracker August 5th, 2024: Physical/Equity Screens And Trades, Positive Signs For Copper
- Factors to Watch that Influence Hong Kong and China Stock Markets in Coming Days
- A Recession on the Horizon?
- [CB 30/2024] Corn & Soy Tumble on Improving Weather; Chinese Demand Likely to Support Soy
The Carry Trade as Risk Driver
- Risk appetite is undergoing a cross-asset carry trade-driven panic and a bottom is near. The equity market is sufficiently oversold and poised for a relief rally.
- Barring some unexpected exogenous event, downside risk is limited at these levels.
- Expect a short-term relief equity rally into August, led by small caps and value stocks.
The Fed: A Political Institution Prepares Financial Markets for Lower Interest Rates
- The Fed has been a political institution since its inception, while its responsibilities have been changed over time. Political pressure on the Fed is counter-cyclical will always prevail this way.
- Markets have become decidedly more dovish about the Fed’s policy conduct as the presidential election approaches, effectively raising the ante on the Federal Open Market Committee.
- President Trump wishes the federal funds rate to remain unchanged until the election, but the current FOMC membership suggests at least one policy rate cut this year.
Several Factors Supporting Gold Price
- Gold tread new high of $2,386.10 per ounce. Several factors support the gold price including geopolitical instability, upcoming Fed interest rate cut, central bank purchases, and still slightly strong inflation.
- Gold’s long-term returns are actually pretty good. Investors should hold a certain proportion of gold in their positions to increase risk-adjusted returns.
- Currently, global investors hold too many risky assets such as stocks, resulting in a lower rate of return on such assets.
Copper Tracker August 5th, 2024: Physical/Equity Screens And Trades, Positive Signs For Copper
- Copper declined below the 9,000 USD/ton levels (WoW by -0.5%) due to weakness in financial markets caused by the Federal Reserve’s slowness in cutting rates.
- Positive signs for copper were the Yangshan Copper Premium inflecting into positive territory and combined inventory on all exchanges being drawn down by almost 5%.
- Lundin Mining (LUN CN) and BHP Group Ltd (BHP AU) will acquire Filo (FIL CN) for 4.1 bn CAD and develop the Josemaria project in Argentina.
Factors to Watch that Influence Hong Kong and China Stock Markets in Coming Days
- The Hang Seng Index plunged 2.1% last Friday and fell 0.5% for the week to close at 16,945 points. A total of 7.4% have been evaporated in three weeks.
- Looking ahead to this week, the mainland will release a number of economic data, coupled with the release of blue chip stocks, it will become the focus of the market.
- The U.S. presidential candidates may toughen their stance against China. Therefore, even the Chinese stocks are cheap in valuation, foreign investors are still cautious about absorbing Chinese stocks.
A Recession on the Horizon?
- The markets have been rattled by a series of weak economic data, but it’s not time to panic. Economic growth is decelerating, but it’s not recessionary.
- The Fed is correctly signaling an imminent cut in interest rates as long as inflation data remains soft.
- The U.S. economy is in a not too hot, not too cold Goldilocks growth scenario that should be equity friendly.
[CB 30/2024] Corn & Soy Tumble on Improving Weather; Chinese Demand Likely to Support Soy
- North Dakota accounts for 51% of total US spring wheat production. The region’s projected 2024 crop yield 15% higher YoY at an average of 54.5 bushels per acre.
- Large old-crop corn inventories record yield of 183-185 bpa collectively dragging corn prices down.
- Wheat vols rebounded last week after falling the prior week. Prices face uncertainty as strong exports, lower production in EU & China provides support against massive US harvest.
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