Daily Brief Macro: Week at a Glance – Squuuuuuuuuueeeeeeze! and more

• Happy Monday, let’s dive into the most critical stuff we are on the look out for this week.
• Morning moves: It seems like physical commodities markets are catching up to the China stimulus story from last week, in tandem with the Hang Seng.
• Over the end of last, Japan’s elections pushed USD/JPY lower, leading investors to sell the Nikkei rather aggressively due to a clear hawkish expected lean from the new PM Ishiba.

• Economic policy in the US and China, the two most important economic partners for emerging Asia,  is turning more supportive of global growth.
• Oil prices are also entering a period of “lower for longer”; Saudi Arabia’s signal of reversing its production cuts will exert downward pressure on oil prices, largely to Asia’s benefit.
• The overall result of these developments is to open up more scope for policy loosening, strengthen export demand and encourage more investments, to emerging Asia’s benefit. 

• Recent policy changes in China have sparked a surge in commodity prices and stock markets
• China’s focus on stimulating the real economy over asset prices sets them apart from Western policies
• Chinese government has implemented measures such as interest rate cuts and lower bank reserve requirements to boost liquidity and investment

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• HK/China stock markets are re-rating quickly sentiment became overly pessimistic.
• A stock market bottom precedes a property market bottom by years.
• China’s markets have languished due to the government’s focus on supply-side solutions.  That focus has now shifted to include demand-side stimulus efforts as the PBOC Put accelerates.

• Our earlier articles state the natures and description of several monetary actions by PBOC last week, highlighting a possibility of stock rallly
• This article on the other hand dicussess the economic benefits of the monetary policies, which are more relevant from the authority’s point of view.
• For stock market still, we believe the RMB 800 billion fund, given a RMB 2-3 trillions daily transaction volume and 60% LTV leverage , has long been dumped into market.

• Stimulus / Cover Story: China’s stimulus bomb sparks optimism, but economy may still struggle
• Asia New Vision Forum /Asia New Vision Forum: China expected to be world’s biggest economy by 2050, Thornton says
• Political /: Ex-local lawmaker becomes latest official punished for his reading material

• Headline EA inflation disappointed consensus expectations by dropping another 0.4pp to 1.77% amid lower energy prices and stagnant industrial goods prices.
• Although the outcome was within 1bps of our forecast, it has been grinding lower in recent weeks. The likely rebound above 2% looks increasingly small and fleeting.
• The expected rebound restrained the ECB, so its diminishment while demand disappoints now makes an October rate cut likely in addition to the December move.

• Core PCE inflation was 2.7%YoY in Aug’24, too high to allow another 50bp cut in Nov’24, despite the fourth consecutive MoM (annualized) gain in core PCE of less than 2%.
• The Jul’23-Feb’24 acceleration in base money (10.2%YoY in Feb’24) contributed crucially to the Jan-Apr’24 spike in core PCE. Slower base money, and steadily accelerating M2, made things better since May’24. 
• Mild, steady acceleration in M2 (i.e., small rate cuts every 6 weeks) should allow core inflation to keep receding. Faster rate cuts are possible once inflation is genuinely at 2%YoY.