In today’s briefing:
- Understanding Oil Price Shocks: What to Expect from Asset Class Returns?
- Japan Watch: How will Ueda cope with all of the “pauses”?
- China’s Slow-Burning Financial Crisis Worsens Amid Persistent Overcapacity
- China Housing – And The Sum Of All Tiers [Webinar Presentation Video]
- Energy Watch: Time for Nat Gas to Outshine Oil?
- EM by EM #22 The Good, the bad and the ugly
- BoE: Fine Balance Falls Down
Understanding Oil Price Shocks: What to Expect from Asset Class Returns?
- We examine asset class performance over 1, 2, 3, and 6 months after a 15%+ oil price increase in one month and a 25%+ spike in three months.
- Historically, oil price shocks were not detrimental to stocks. Returns were positive for all periods after the shock. More importantly, returns were higher after oil shocks than the ‘normal’
- Gold also outperformed, and interestingly, oil continued to spike, causing additional headaches for central banks. Mainly since spiking oil prices are indeed reflected in higher inflation.
Japan Watch: How will Ueda cope with all of the “pauses”?
- The Japanese market is always puzzling for Western investors, even if they are seldom overly involved in it unless they borrow in JPY for FX carry trading.
- Let’s take the conclusions up front:– The BoJ is en route for the largest-ever nominal purchase of JGBs in 2023 despite “policy normalization” efforts, which is a large discrepancy to the narrative that they are actually tightening.
- They are NOT from a balance sheet perspective.
China’s Slow-Burning Financial Crisis Worsens Amid Persistent Overcapacity
- Persistent overcapacity in industry and real-estate has resulted in a spreading crisis among shadow-banks, as many of them begin defaulting on investment products (pseudo-deposits). Moral hazard rules out government rescues.
- As global supply chains abandon China-centricity, exports continue losing global market share. But with domestic demand weak, the annualized trade surplus is US$900bn, much of it leaking as capital flight.
- FAI is decelerating (adjusting to industrial capacity). Shrinking working age population requires productivity to be main driver of growth. Japanified decade ahead likely, but with RGDP growth settling at 3%.
China Housing – And The Sum Of All Tiers [Webinar Presentation Video]
- We hosted a Real Estate Foresight Webinar on Sep 20, with our latest take on China’s housing markets after the recent policy easing wave
- Can we see the impact of the policy easing? How much of further stimulus to expect? What will be the ‘next normal’ for new home sales after the downturn?
- A quick poll of the participants (experienced professionals in China property) showed a 100% consensus that more easing will be needed to trigger a rebound in new home sales
Energy Watch: Time for Nat Gas to Outshine Oil?
- Back at the office after spending time with clients in the energy space with loads of discussions around the intersphere between Macro and energy markets.
- The mood is obviously upbeat and the sell-side consensus is getting relatively crowded in calls for a higher oil price.
- Where were these people 2-3 months ago?
EM by EM #22 The Good, the bad and the ugly
- EM’s are desperate for a weaker USD and may see some brief yet necessary breathing room from the pending US Government Shutdown.
- But don’t count on it making much of a difference.
- A bottoming in China may present some relief to relevant trade partners
BoE: Fine Balance Falls Down
- The BoE MPC’s September decision was thrown into doubt by the low CPI print. It divided 5:4 and erred on the side of no change, contrary to most expectations.
- Weaker activity data gained emphasis while looking through surging average earnings data that it didn’t believe. Potential payback could easily turn this hold into a pause.
- Four members already favour higher rates, and another four saw their no-change votes as finely balanced. So at least the HR hurdle to a November hike seems small.
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