In today’s briefing:
- The Tipping Point for China’s Debt
- Positioning Watch – Metals bets are finally being squared, but retail is piling in
- Technically Speaking, Breakouts and Breakdowns: HONG KONG (July 31)
- [IO Weekly 2024/30] China’s Manufacturing Slowdown & Strong Supply Continue to Pressure Iron Ore
- Great Game – How to assess risks in Lebanon and Venezuela
- Unsurprising FOMC July Statement
- Japan Policy Rate 0.25% (consensus 0.1%) in Jul-24
- US Policy Rate 5.5% in Jul-24
- A Reversal of Conventional Wisdom: Growth Stocks Outperform Value Stocks
- CX Daily: Why and How China’s Overhauling Monetary Policy (Part 1)
The Tipping Point for China’s Debt
- Concentration of debt, asset prices, and fiscal deficit will determine the tipping point of China’s debt.
- If China does not continue to work on debt de-concentration, prop up its asset prices, or rein in fiscal deficit, China may as well face a debt crisis.
- To examine the conditions for China’s debt situation, it is vital to look at three key indicators of debt sustainability: concentration of debt, currency stability, and fiscal budget.
Positioning Watch – Metals bets are finally being squared, but retail is piling in
- Markets remain focused on 2-3 rate cuts from the Fed, growth not rolling over fully, and inflation continuing its downward trajectory.
- There seems to be no way to change this narrative among market participants.
- The slightly hawkish PCE in the US and today’s relatively high German inflation print (in harmonized terms) had a hard time moving rates markets, which are currently pricing more than 2.5 cuts from the Fed and more than 2 cuts from the ECB by year-end, with Fed September pricing even showing a tiny lean towards 50 bps.
Technically Speaking, Breakouts and Breakdowns: HONG KONG (July 31)
- The energy, materials and tech sectors have lost momentum, while telecoms and utilities sectors lead the market. Consumer sectors are lagging. HSCI has dipped below its 200 day moving average.
- Hong Kong & China Gas (3 HK) breaks to the upside as investors seek safety and yield.
- PetroChina (857 HK) has broken down relative to the MSCI China index and Travelsky Technology Ltd H (696 HK) breaks down from a triangle formation but downside is limited.
[IO Weekly 2024/30] China’s Manufacturing Slowdown & Strong Supply Continue to Pressure Iron Ore
- Weakness Persists: Iron ore prices hovered at critical support level of $100/ton on consistent ample supply & weak demand driven by China’s slowing manufacturing sector.
- Options Market Shift: Despite overall bearish sentiment, the options market showed increased call activity, particularly for front-month expiries, indicating potential short-term bullish speculation.
- Production & Supply Outlook: Major producers like Vale & Rio Tinto are expected to increase iron ore output, contributing to a bearish outlook due to ample supply in global markets.
Great Game – How to assess risks in Lebanon and Venezuela
- Welcome to this week’s Great Game, where we try to assess the market risks of current geopolitical events.
- This week – Israel-Hezbollah and Venezuela!
- Once again, we’re discussing a potential widening of the Israel-Gaza conflict as missiles and drones are exchanged between Israel and Hezbollah in Lebanon.
Unsurprising FOMC July Statement
- The FOMC statement made fairly subtle changes to the language on inflation, with more significant dovish shifts made in the language on employment.
- Fed is not willing to signal that a September easing is a done deal. However the tone of Jerome Powell’s press conference was generally optimistic, suggesting a likely September move.
- Our house believe that there will be an one-off rate cut in September but unlikely a series of rate cuts in coming months, as inflation and employment are easily aroused.
Japan Policy Rate 0.25% (consensus 0.1%) in Jul-24
- The BOJ raised its policy rate by 15 basis points to 0.25%, contrary to consensus expectations, signalling a proactive stance in addressing inflationary pressures while supporting economic recovery.
- Future interest rate decisions will be influenced by global economic developments, domestic economic indicators, inflation trends, financial market stability, and the impact of government economic measures.
- The BOJ’s strategy focuses on gradual policy normalization, with a cautious approach to reducing JGB purchases and raising interest rates, ensuring sustained economic growth and stable inflation.
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
US Policy Rate 5.5% in Jul-24
- The FOMC has maintained the federal funds rate at 5.25-5.5% in response to moderated economic growth and a stable yet adjusting labour market, indicating a cautious approach to policy normalization while acknowledging ongoing economic resilience.
- Despite easing from previous highs, inflation remains above the desired 2% threshold, prompting continued vigilance from the FOMC. The Committee’s policy stance is designed to ensure inflation progresses sustainably towards the target, supported by well-anchored long-term expectations.
- The FOMC emphasizes a flexible, data-driven approach to future rate decisions, prepared to adapt monetary policy as required based on comprehensive assessments of inflation dynamics, labour market conditions, and overall economic performance.
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
A Reversal of Conventional Wisdom: Growth Stocks Outperform Value Stocks
- What implications does the recent trend of growth stocks significantly outperforming value stocks have for investors?
- The famous economist Eugene Fama’s Three-Factor Model mentions that small-cap stocks will outperform large-cap stocks and value stocks will outperform growth stocks in the long run.
- However, looking at the performance of the U.S. stock market, in recent years, not only large-cap stocks have significantly outperformed small-cap stocks, but growth stocks have also outperformed value stocks.
CX Daily: Why and How China’s Overhauling Monetary Policy (Part 1)
- Monetary / Caixin Explains: Why and how China’s overhauling monetary policy (Part 1)
- Flights /: Olympics Games boost air travel between China and France
- Property /: China must resolve real estate crisis and not rely on exports alone, expert warns
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