Macro Mondays: Is Bitcoin's Recovery Just a Mirage?

Summary

In this financial analysis video, the hosts discuss the Federal Reserve's shift in focus from inflation to stabilizing the labor market, hinting at aggressive rate cuts if unemployment rises. They explore implications for Japan, hedge fund positions, and equity markets, suggesting a coordinated message from G10 central banks. The conversation also touches on geopolitical tensions and China's economic outlook, anticipating a challenging September for equities and commodities due to seasonal patterns and potential market overreactions to recent monetary policy signals.

Takeaways

• 🌐 The video discusses the implications of the Federal Reserve's shift in focus from inflation to stabilizing the labor market, suggesting a potential aggressive rate cut if unemployment rises.
• 📉 The script highlights the market's expectation of a new equilibrium rate of 3% for interest rates, with a front-loaded cutting cycle anticipated by the market.
• 💡 There is a suggestion that the Federal Reserve's actions could lead to a reflation in commodities and equities, but with a caution that the impact may not be immediate.
• 🗓️ The script notes that September is historically a challenging month for financial markets, with a tendency for lower performance across various assets.
• 💼 The Federal Reserve's dual mandate allows it to focus on employment without needing to create new objectives, which is a key factor in their current strategy.
• 📊 The discussion points to a potential over-positioning in certain markets, such as materials equities, which could be vulnerable if the expected stimulus from rate cuts does not materialize quickly enough.
• 🌍 The script touches on the impact of the dollar-yen trend on Asian economies, suggesting that a continued decline could negatively affect exports and economic momentum in the region.
• 📉 There is a concern that the Federal Reserve's interest rate cuts could coincide with a weakening in China's domestic economy, which could further affect global markets.
• 🤔 The video raises questions about the effectiveness of the Federal Reserve's strategy, particularly regarding the timing and impact of their rate cuts on inflation and employment.
• 📈 The script suggests that small-cap stocks might benefit from the expected interest rate cuts, as they have been more negatively impacted by tight financial conditions.
• 📊 The positioning watch article mentioned in the script indicates that hedge funds were selling in July, while retail investors were buying into risk assets, which could influence market dynamics.

Q & A

What is the central theme of the event being discussed in the video?

The central theme of the event is exploring new ideas and gaining a better understanding of the exponential world, featuring expert speakers and discussions with smart, like-minded individuals in Singapore.

What major economic event took place recently that the speakers are discussing?

The speakers are discussing the recent Jackson Hole speech, which had significant implications for the economy and financial markets.

How has the Federal Reserve's stance shifted according to the script?

The Federal Reserve's stance has shifted from focusing on inflation to stabilizing the labor market, as indicated by their reaction to rising unemployment numbers.

What does the Federal Reserve's dual mandate allow them to do?

The Federal Reserve's dual mandate allows them to focus on both employment and inflation, enabling them to shift their focus between these two objectives without needing to invent new mandates or objectives.

What is the current debate about the Federal Reserve's approach to inflation?

The debate is whether it's too early for the Federal Reserve to call an end to the fight against inflation, as they have narrowed their focus primarily on employment.

What forward-looking indicators suggest a potential increase in unemployment?

The leading indicators suggesting a potential increase in unemployment over the next 6 to 12 months are not specified in the script, but it is mentioned that they imply at least a 100 basis points higher on employment.

What is the market's current expectation for the Federal Funds rate?

The market expects the Federal Funds rate to reach 5% by September and then decrease to almost 3% over the next 12 months, indicating a front-loaded cutting cycle.

What is the significance of the Bank of Japan's recent actions in relation to the Federal Reserve's policies?

The significance is that while the Federal Reserve is moving towards lowering interest rates, the Bank of Japan is taking small steps to raise rates, creating a divergence in monetary policy between the two central banks.

How might the trend in USD/JPY affect other markets according to the speakers?

The trend in USD/JPY could potentially spill over to commodity markets and affect equity markets, as it has been correlated with the performance of markets like Nikkei in Japan and NASDAQ in the US.

What challenges is China facing that could impact its economic outlook?

China is facing challenges such as a slowing export sector, a domestic economy that has been weak since 2020, difficulties in refueling the credit machine, falling house prices, shrinking population size, and low consumer sentiment.

What does the script suggest about the market's positioning heading into September?

The script suggests that the market is heavily positioned for equities to perform well due to the Federal Reserve's expected interest rate cuts, but also indicates that September seasonality could be weak for commodities and equities.

Outlines

00:00

🌟 Introduction to an Exponential World Event

The script opens with an introduction to an event called 'token2049' in Singapore, which promises to be a brilliant gathering for gaining new ideas and insights into the exponential world. The event features conversations with smart, like-minded individuals and experts on stage, creating a valuable networking opportunity.

05:01

📉 Macro Mondays: Analyzing the Federal Reserve's Shift in Policy

This paragraph discusses a shift in the Federal Reserve's policy focus from inflation to stabilizing the labor market, as indicated by recent nonfarm payroll reports and unemployment numbers. The Federal Reserve's commitment to cut rates aggressively if unemployment spikes is highlighted, along with the potential implications for the fight against inflation. The conversation also touches on market expectations and the potential for a major hedge fund position adjustment.

10:01

📉 Forward-Pricing and Market Expectations for Rate Cuts

The discussion moves to forward pricing and market expectations for interest rate cuts. The market has honed in on a 3% equilibrium rate, with a front-loaded cutting cycle expected. The conversation delves into the implications of the Federal Reserve's clear reaction function and the potential for more rate cuts than previously anticipated, given the commitment to address unemployment spikes.

15:03

💱 The Impact of Central Bank Policies on Currency and Markets

This section examines the impact of divergent central bank policies, particularly focusing on the Bank of Japan's hawkish stance versus the Federal Reserve's easing approach. The potential effects on the USD/JPY exchange rate, carry trades, and broader market implications are discussed, including the role of institutional investors and the structural aspects of the yen carry trade.

20:04

🌐 Global Economic Concerns and Market Outlook

The script addresses global economic concerns, including the potential for a recession in China, the impact of the Bank of Japan's policies on institutional investors, and the broader implications for Asian macroeconomic trends. The conversation also touches on geopolitical tensions in the Middle East and their potential effects on market sentiment.

25:06

📊 Market Positioning and Sector Analysis

The final paragraph delves into market positioning, with a focus on hedge fund flows and sector analysis. It discusses the heavy positioning in materials equities linked to China and commodities, and the potential risks of expecting immediate results from interest rate cuts. The conversation concludes with a cautionary note on the need for selectivity and awareness of cyclical brewing in the market.

🎉 Conclusion and Invitation to Real Vision

The script concludes with an invitation to join Real Vision for in-depth analysis of finance, business, and the global economy. It emphasizes the platform's value in helping viewers understand complex topics and stay ahead in the market, with insights from real experts.

Keywords

💡Exponential growth

Exponential growth refers to a pattern of increase where the value of a variable grows at a rate proportional to its current value. In the context of the video, it is used metaphorically to describe the rapid pace of change and innovation in the world, particularly in relation to technology and finance. The script mentions 'incredible exponential world,' suggesting that the event will offer insights into these fast-paced developments.

💡Federal Reserve (FED)

The Federal Reserve, often referred to as the FED, is the central banking system of the United States, responsible for implementing monetary policy. The video discusses the FED's shift in focus from combating inflation to stabilizing the labor market, as indicated by the script's mention of 'Federal Reserve' and its response to unemployment numbers and inflation rates.

💡Nonfarm Payroll Report

The Nonfarm Payroll Report is a key economic indicator in the United States that measures the change in the number of jobs in the economy, excluding the agricultural sector. The script references this report as a factor influencing the Federal Reserve's policy decisions, particularly when noting the increase in unemployment numbers.

💡Dual mandate

A dual mandate refers to the two main goals assigned to the Federal Reserve: to maintain stable prices and full employment. The script alludes to this concept when discussing the FED's ability to shift its focus between inflation and employment without needing to create new objectives.

💡Interest rate cuts

Interest rate cuts refer to a monetary policy action by a central bank to reduce interest rates, typically to stimulate economic activity. The video discusses the market's expectations for aggressive interest rate cuts by the Federal Reserve, as indicated by the script's mention of 'cutting aggressively' in response to unemployment spikes.

💡Unemployment

Unemployment refers to the state of willing and able people who are without work but are seeking employment. The script discusses the Federal Reserve's commitment to prevent further deterioration of the labor market sentiment, with unemployment being a critical factor in their decision-making process.

💡Hedge funds

Hedge funds are a type of investment fund that pools capital from accredited investors or institutional investors and invests in a variety of assets, often using complex strategies. The video mentions hedge funds in the context of their positioning in the market, suggesting that their actions and strategies are of interest to the discussion.

💡Equity markets

Equity markets refer to the forums in which shares of stock in publicly traded companies are issued and traded. The script discusses the potential outlook for equity markets in September, indicating that the discussion includes analysis of stock market trends and predictions.

💡Dollar-Yen

Dollar-Yen refers to the exchange rate between the United States dollar and the Japanese yen. The script discusses the trend of the dollar-yen exchange rate and its implications for the Japanese economy and global markets, particularly in the context of differing monetary policies by the Bank of Japan and the Federal Reserve.

💡Carry trade

A carry trade is a strategy in which an investor borrows money at a low interest rate in one currency and invests it in another currency that offers a higher interest rate. The script mentions the Bank of Japan and Japanese pension funds in the context of carry trades, suggesting the impact of monetary policy on such trading strategies.

💡Seasonality

Seasonality refers to the predictable and regular changes in economic activity over different times of the year. The script discusses the impact of seasonality on financial markets, particularly mentioning September as a month with a tendency for declines in certain asset classes.

Highlights

The event in Singapore promises to offer new ideas and a deeper understanding of the exponential world.

Discussing the Federal Reserve's shift in focus from inflation to stabilizing the labor market following July's unemployment numbers.

The potential implications of the Jackson Hole speech for Japan's equity markets and major hedge funds' positions.

Market expectations for aggressive Federal Reserve rate cuts if unemployment rises, based on leading indicators.

Debate over whether it's too early for the Federal Reserve to end the fight against inflation.

Analysis of the Federal Reserve's dual mandate allowing them to focus on employment without new objectives.

Market forward pricing indicating a new equilibrium rate of 3% and expectations for rate cuts.

The impact of the Federal Reserve's reaction function on market pricing for future rates.

The potential for a coordinated message from G10 central banks on interest rate policy.

The dollar-yen trade and its correlation with equity markets, and the potential for a continued upward trend.

The role of the Bank of Japan's policy in influencing the dollar-yen exchange rate and its broader economic implications.

Concerns about the potential negative impact of the Federal Reserve's policy on Asian economies.

September's typical market performance and its historical trends, including the tendency for declines in various assets.

The potential withdrawal of liquidity in September due to corporate tax payments and its effect on market liquidity.

Geopolitical tensions in the Middle East and their potential impact on global markets.

China's economic indicators, including pollution data and M1 money supply, suggesting a potential recession.

Hedge fund positioning and market sentiment towards equities and commodities.

The importance of being selective in the market amidst interest rate cuts and economic uncertainties.

The potential for better returns in the broad market compared to high-multiple tech companies.

Materials sector positioning as a warning sign of market expectations following interest rate cuts.

Transcripts

[Music]

it's a brilliant brilliant event and

you'll come away with lots of new ideas

and a better understanding of this

incredible exponential

[Music]

world you get to speak to the smartest

people people like you trying to figure

this out but also the people on stage

they're the

experts so we get all of that all in one

place in Singapore what more can you

[Music]

ask see you at token

2049 hello out there and welcome to

another edition of macro Mondays my name

is wall we are sending here from

Copenhagen with me as usual I have you

Andreas sto welcome to the show thanks

Michel good to see you you had a good

weekend after the the Jackson Hole

speech on Friday honestly I spent like

48 hours trying to digest what happened

um it was a big thing yeah absolutely

we'll dive much more into that we'll

have a look at as usual implications for

Japan we're a big Japan show apparently

uh talk a little bit about how September

might look in equity markets and uh also

look a little bit at how major hedge

funds are positions it's been a while

since we had those uh those charts on

the show so we'll we we'll dive into

that Andreas I saw this meme I want to

start with this uh on top of the Jackson

Hall speech um the FED is now looking at

cutting people who know people who who

don't know I mean what did you make of

this uh Jackson Holt

speech so I think the major shift within

the Federal Reserve happened through

July especially as we saw those

unemployment numbers ticking up uh every

week nonfarm payroll report and

ultimately that was the clue for the

Federal Reserve to shift their focus

away from inflation towards trying to

stabilize the development in uh in the

labor

market and they obviously have a dual

mandate so they can do so uh without

having to sort of invent new mandates or

new

objectives the big question is whether

it's too early to call an end to the

fight against inflation uh they've

obviously done so by narrowing down

their Focus to only employment more or

less now J poell said that they would

not

accept another deterioration of the

labor market sentiment from here uh that

is a pretty firm commitment to cut

aggressively should we get uh another

spike in unemployment which I think is

very likely we've talked about that for

a month or two that the leading

indicators suggest that we get say at

least 100 basis points higher on

employment over the next 6 to 12

months and consider the Federal Reserve

back in June posted their new Central

projections around

unemployment and they have a base case

of 4% unemployment this year and 4.1% on

employment next year so we're basically

already past that um threshold uh in a

negative sense

and they obviously have the uh

opportunity to update their projections

in September but I would assume again

that they pencil in a forecast of say

unemployment at 4.3 4.4 something like

that they can easily be surprised on the

on the downside in terms of employment

over the next six months again so I

think this is a very strong hint that

they will cut aggressively uh I know

this is a major shift uh relative to the

sentiment we had through the first half

of the year uh as Avid Watchers of this

show will know we were firmly against

that major cutting cycle that was priced

in early in the year it proved to be the

correct standpoint uh but now the tide

has turned simply because the FED has

turned so explain the logic here Andreas

is this this simply a matter of wag Ando

you look at inflation and and

unemployment which whichever number is

rising that's what you try to combat or

or what's what's the logic here yeah I

think that's a very simple way of

looking at it but it actually works that

way uh given that unemployment is is now

ticking up given that we have some um

some pretty nasty forward looking

indicators on on employment it kind of

makes sense for the Federal Reserve to

shift their focus especially as we've

had a couple of soft inflation prints in

a row it's not like it's a home run for

uh the inflation Target yet but we're

getting there and they're very convinced

that uh the lacking parts of the

inflation basket namely within shelter

costs and transportation costs they will

come down during the second half of the

year um that what their models are

telling them so we're basically

back at a stage where the Federal

Reserve is trying to look a bit ahead um

and you could argue that it's about time

that they do so uh given the

forward-looking indicators on employment

uh but the big question is whether

inflation will flare up again next year

as a consequence of this but I mean M

we're Traders we're macr Traders right

we're trying to get the next step right

uh so if inflation's spikes again in a

year from now it doesn't really matter

right now for markets no no one cares uh

so all that matters right now is to get

the next move right in dollar interest

rates the next move right in the dollar

uh and the next move right in Japan

absolutely get to Japan just a second

let's just as a bridge for that Andreas

look at some of the the the forward

pricing uh you mentioned a little bit

about the the the timing of this rate

cut what do you see uh going forward for

what Vis how markets are positioning in

in in in future rates so the market sort

of honed in on 3% as the new equilibrium

rate uh what we have on the screen here

is is the sulur rate uh in forward

pricing uh September this year next year

uh 26 27

Etc and as you can see we approached

3% uh towards September 2020 5 already

so I mean the cutting cycle is very

front loaded it needs to be uh I think

that makes sense given what Powell said

on Friday but the question is whether 3%

is is that a fair assessment of of where

we we will settle

um we we got to roughly those levels

around New Year uh before repricing back

to 4% uh in the equilibrium rate and

there's a big difference between the

pricing we saw around year turn and the

pricing we see now in terms of the

backdrop uh because at the time we had

no clear promise on when interest rate

Cuts would arrive we had no clear

reaction function spelled out in terms

of what they would react to We have that

now uh and therefore I think it makes

sense solely from a risk Premier

perspective to pricing more Cuts than

what we did in in in

January As We Know that the FED will cut

aggressively if unemployment spikes as

we know that the FED will cut already in

September so we basically have the

reaction function uh spelled out just in

front of us which is a major difference

to what uh what was the case around New

Year's uh so let's see uh I I think it

it makes sense to um to continue to lean

into fixed income here uh we had a look

was it a month ago Mel in this

show at patterns in us treasuries around

the First Rate cut and it is close to

100 % uh hit ratio of being long brought

us trases into such an event then we can

obviously discuss what happens after but

um yeah we still have a few weeks of

that ongoing yeah it does seem quite

drastic for the essentially What markets

are expecting is that the uh will hit 5%

by September and then over the come the

next 12 months we will go down to three

almost almost almost that that seems to

be quite an intensive cutting season how

should that I know we're looking a bit

further than what ahead on what what we

usually do but if you look at that

12month period what should that mean for

for for your

positioning I think first of all we

probably need some 50 basis point cuts

to get there right yeah that's what I

mean that's simp simple math uh in many

ways I think I think it's very likely

that we get 50 basis points Cuts already

this year uh now that they've opened the

door to protecting the LA Market uh with

everything they have in their ammunition

basically and

50 basis points is still not the base

case for September in market pricing uh

we have roughly four CS priced in for

the remainder of the Year meaning that

we have three times 25 basis points and

then some sort of risk premium uh

related to to the risk of a 50 basis

points cut at one of these

meetings unemployment will take up more

than what the FED expects it

to uh and that's your clue to um to

expect a very front-loaded cutting cycle

uh we had a few central banks from

Europe out last week as well I took a

lot of notice from from the Swedish

reicks Bank basically promising to cut

at each meeting uh for the remainder of

the Year despite lot a lot of stuff

changing in Sweden in a negative

Direction actually rather the opposite

uh since they met before summer so it

seems like this is a very coordinated

message that we get from G10 central

banks and it's it's not a good idea to

to bet against it fair enough and let's

uh move to Japan you teased a little bit

about that we we we can keep that away

much longer uh our go-to chart in this

show over the past months the USD the

the dollar yen versus Real Race

differentials we see real race

differentials dropping will will the the

dollar Yen trade continue that Trend as

well well it certainly seems so

um we uh we traded thean on the short

side on Friday we still in that trade uh

and it was an important part of of um

gaining some momentum in off returns

around Jackson

Hole and I think it's very hard to see

why that Trend should suddenly stop now

uh you

have the bank of Japan moving rates up

albe it in Tiny Steps you have the

Federal Reserve clearly in the other

camp now of bringing rates lower you

have a very firm Direction set by both

the central banks um Governor

W on Friday yeah he he was out on Friday

as well in Parliament

and on the back of a week of

exceptionally hawkish research

releases in the Bank of Japan research

portal uh so they they released a couple

of papers uh talking about sticky wage

growth service prices being too elevated

in Japan and so on and so forth it

sounds like an echo of the Federal

Reserve 12 18 months

ago

and interestingly this is a backdrop

that we've seen before towards the very

end of a economic cycle right Bank of

Japan being the odd one out in a hawkish

Direction all the sudden

and all other the central

banks yeah basically in the other

Camp what's what's very tricky here Mel

is to assess how important this trend in

dollar Yen will be for other

markets uh I had a thesis that it would

ultimately spill over to commodity

markets as well it's been correct for

most parts of July um with gold not

being a victim yet uh and I I know we've

talked a bit too much about that trade

given how um mediocre

performance we've seen in our gold puts

it's not like gold is through the roof

but it's it's it's been performing okay

I have to admit that but if you look at

the dollar Yen trade

versus Equity markets for example I know

you have a chart on the next page May on

uh on

that those two Trends have been very

neatly correlated up until early August

so you've seen Nik in Japan performing

you've seen NASDAQ in the US performing

along side the dollar versus the Yen

trending

higher and we obviously had a major wash

out of positioning through July um The

Rock was pulled from under hedge funds

in that trade it carried spill over to

uh leverage positions in equity space as

well the question is how important is

the structural dollar Yen carry trade

because we had a wash out in the

non-structural trade in my opinion so

hedge funds in and out of the trade

right we had a wash out of those but we

haven't seen a wash out of asset

managers the gpif the government pension

scheme in Japan the biggest investor on

Earth uh we haven't seen a wash out of

the bank of Japan because they're in

this trade as well uh the bank of Japan

is the biggest carry Trader on Earth I

mean they have a lot of dollar uh assets

and they print Yen I mean that's like

borrowing in Yen um so with waa telling

the local Pension funds to buy more at

home that's essentially the message when

they try to bring down the scale of QE

when they try to bring interest rates on

on JVS

up amidst a week of returns in um in in

the dollar

space uh it will be very interesting to

see how these Japanese live and Pension

funds react because to a certain extent

they'll have to repatriate Capital

because of this uh and that's the

structural part of this equation that's

not the fast money part that's the real

long-term structural money and and that

could turn the tide on on a few of the

the very concentrated trades in in in

the dollar space you want unfuck your

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thesis is that it's a goal for the bank

of Japan and waer to have these

institutional investors pull money back

into Japan from us equities and wherever

they're invested so is this uh good for

the N what you we be looking

at I I'm not necessarily sure it's good

for any Equity index uh on the margin

remember that we have other moving Parts

out there but um the gpiv and the other

life and Pension funds in Japan they

will have to take notice of what AA is

telling them um meaning that they will

have to repatriate Capital on the margin

relative to what they've done and I

think it's I think it's a biggie uh

should dollar Yen move to 130 let's just

say that I mean we we found some sort of

equilibrium around uh 45ish towards the

end of July early August and now with

Powell moving the needle even further

waer moving the needle even further that

goal post has moved below

140 and it's moving lower on a trend

basis so assume we get to 130 um it will

likely pull the Rock from under the

momentum in Asian

macro uh it's not good news for Asia is

an exporting region right yeah uh and

assuming that we get a a much firmer um

Asian FX Outlook which is what is

basically on the cards right now that's

bad news for the exporters out there uh

it's bad news for the economic momentum

we already have very weak

forward-looking indicators from uh from

from parts of the region out there uh

and

therefore essentially my thesis here is

that the power put that he basically

Bally put in place around the labor

market could end up being a catastrophe

for

Asia

um and something that will likely carry

spill over globally very interesting

we'll uh try and narrow down the time

frame a little bit and address and look

ahead at September because you did so in

our weekly portfolio watch this this

Friday you can find the entire article

on uh on stain research.com along with

all our other uh research but let's just

have a look at two major indicators

liquidity and China yeah

and what they might mean for Equity

Outlook in in September and other asset

classes so we talked a lot about

liquidity last week uh you still see a

very strong Q4 for liquidity but very

very shortterm looking uh in September

what's the trend yeah so uh September is

is typically a pretty nasty month uh

both when you look at seasonal patterns

uh we're talking about 10 out of 10

years in a row gold has been down uh

silver has been down uh eight out of 10

years I think NASDAQ has been down most

most of the years in September as well

so why is that well it it feels kind of

reminiscent of of a story we also

touched upon back in April where we had

some tax seasonalities pulling um

liquidity out of the market and it's

kind of the same pattern that we see in

September it's WS mid September we have

corporate tax payments Etc coming in

leaving uh liquidity at the treasury

general account instead of in the pr

private commercial banking system and

then we obviously have the quarter end

as well where where we typically see

some um some window dressing in the

overnight reverse repo facility towards

the end of the quarter meaning that

we'll get below what I call pain

thresholds in uh the dollar Reserve

System towards the end of the month uh

it's it's not necessarily the end of the

world it's just on the margin not good

news um and the reason why we have such

a positive Q4 ahead of us is that the

treasury general account will have to be

brought close to zero ahead of the debt

ceiling early next year uh it doesn't

really seem like anyone is doing

negotiations in the US right now they're

they're preparing for uh the election

season obviously

um the Middle East is flaring up again

yeah no hopes of peace right now now

yeah I'd like you to get now that we're

talking about that uh uh September um

withdrawal of liquidity I mean what if

we add uh war between Israel and hisbah

here and I mean over the weekend we've

obviously seen attacks back and forth

but yeah so I mean last week I had some

hope that we were getting closer to a

ceasefire or some sort of uh temporary

pece in the Middle East that was

basically thrown out of the window when

when when Israel decided to attack

Hezbollah the the the ceasefire talks

seem to have stalled so Israel would

probably claim that this was they were

waiting with this attack to give peace a

chance and then when when negotiations

crashed they they they they chose to

attack his Bala I think we will see more

this week uh attacks back and forth

maybe also including including Iran so

that's uh obviously not good news for

for equities um obviously not the the

breath of optimism that that that could

be brought into to to markets to already

volatile markets and nervous markets

with with with a ceasefire down there so

so no hopes really there uh and

apparently Andress no hopes out of China

either uh we have this uh I know it's

tough with with with with numbers out of

China but you have this indicator

linking the Chinese GDP to the Yuan out

there and you're speculating that we

might see even a recession and China

despite their hopes for the the thing

about China is that we'll never really

get official confirmation of whether

we'll get a contraction in GDP because

we obviously had a contraction in GDP

around the pandemic as well and it was

never

reported but a few observations from

China right now uh we use pollution data

from some of the big industrial centers

in in China to assess the ongoing

momentum in the export sector the export

sector has been firing on all cylinders

through the first half of the Year also

in conjunction with the US economy

holding up

Etc that pollution based gauge is now

leveling off meaning that you don't have

that automatic Tailwind from exports

probably also as a function of the US

economy

softening the domestic economy in China

has been terrible

throughout and it's been terrible since

2020 they're struggling to sort of

refuel the credit machine

um we know that especially since' 08

they've used credit as sort of a guide

for their economic cycle on a running

basis they've told Regional governments

to borrow and build and stuff like that

to to obtain those uh GDP Targets in in

uh in in in every single fiscal

year and now they cannot really convince

household to to take on new debt uh simp

because house prices are falling simply

because uh the population size is

shrinking and simply because the

consumer sentiment is on the floor uh

and the regional governments they're

already heavily indebted uh so they

struggle to take more of this bad stuff

on balance sheet they've tried uh but I

mean the size of of these programs is

not really worth talking

about uh so I think the only thing that

can solve this is if the like if we get

a nationwide program to try and bring

some of this bad Deb on balance sheet uh

for the Nationwide

government and honestly we're not really

there um so if you look at M1

developments um in in Wong uh so

relatively narrow measure of money uh

it's

shrinking which which is something that

we frankly haven't se seen before um and

it's not good news in e in an economy

that is typically fueled by credit I

know there are some other liquidity

gauges in China that have improved

somewhat uh but you should see them as a

sort of reaction to tax seasonality in

in China they have to add liquidity to

the banking system uh to keep everything

in float due to tax seasonality so I

don't really see that as a major sign um

yeah so with with the export momentum

fading this is not good news because the

domestic economy is not there to to sort

of keep everything in flow absolutely so

Andre to sum this up looking ahead at

September some some relatively negative

outlooks for the month of September are

we looking into a week September for

equities yeah I think so I think so um

and basically across the board I think

the September seasonality will be weak

in Commodities and

equities um potentially we'll get a u

small Rebound in interest rates a couple

of places but yeah it it it it will not

be an easy month to create returns

that's um that's the sort of the short

message uh you'll have to look for Clues

on on very POS like heavily positioned

trades that you can trade against to try

and find some some value here um do I

dare mentioning gold again I don't think

I should mention it more but I

I we we have to um laugh at ourselves

from time to time maybe we should play

our disclaimer when I talk about that go

trade all the time M yeah yeah yeah just

a general disclaimer all our trade ideas

here they may be sometimes may be good

sometimes may be

that's the way it is yeah very good

you have the disclaimer there obviously

yes uh but again 10 out of 10 yeah uh

hit R of being short gold in September

over the past 10 years so let's see um I

think the commodity Market is is

celebrating a bit too early but on the

back of of um of the Powell speech on

Friday we we've seen reflation traits

performing copper doing it better again

Etc but um yeah let's have a look at the

positioning B absolutely we do uh a

couple of months couple of times each

month we do this positioning watch

article which basically looks at the

positioning of major hedge funds around

the globe and it seems like um the fund

flows indicate that people have been

buying that these people have been

buying the dip essentially uh are into

positive to terms what do you read out

of this yeah so I'm I mean the only ones

selling in July were those hedge funds

caught in the crossfire yeah this dollen

trade uh we even saw retail piling in

with a lot of ammunition into um the

high beta bets in Risk assets and as you

can see from our uh flow of funds data

here we're talking about pretty sizable

moves into equities both in July and

August uh so we're kind of back at the

flow picture we saw towards the end of

q1 where everyone was very positive and

then we had the April seasonality in tax

and remember we actually did get a

pretty nasty drow down in April before a

rebound in May again so I think

something similar is very likely at

least the market is heavily positioned

for for equities to perform due to what

poell said I'd mentioned though that

when you see interest trate cuts of the

magnitude that Powell is currently

hinding towards uh Russell is not the

worst bet on Earth um so small caps they

also performed well on Friday um seems

like they will perform well in a cutting

cycle at least relative to uh to some of

the larger companies and I think it

makes sense given that they've been

complaining about tight Financial

conditions for a long while while the

max sevens and the likes they've been

um they've been blessed with high

multiples and so on and so forth and

they haven't really been uh heavily

influenced by by high interest rates I

know R Pal's been very much on top of

that uh but there there I think there's

a growing possibility that we'll

actually get better returns in sort of

the broad market now um and those CEOs

they've been mentioning on on earnings

calls that get those rates Down Jay come

on please now um so it's about time very

interesting and just just finally uh we

also break these into of course we also

look at the positioning into Commodities

effects Etc um but we also break them

down

in in various sectors of the equity

space uh any any red flags here for you

when we look at Cross sectors so

materials is interesting right because

it's very heavily uh positioned into and

uh the materials Equity sector is of

course Very linked to China it's very

linked to uh the commodity Outlook uh so

I guess this is a sign or a warning that

the market is is expecting J Powell's

interest rate cuts to sort of fuel

everything

immediately

um I think there's some Merit to that

view the issue is the word immediately

yeah uh it took a long while before

interest rate high

worked it will take a while before

interest rate Cuts work as well uh and

that's what we need to watch in the

coming months if we get a few weak labor

market reports um I'm not sure that the

market will will take a lot of comfort

in that having said that Migel and we we

stick to our guns on that um we're

seeing interest rate Cuts amidst some

sort of cyclical brewing and I think

that's still the case uh so when we head

into Q4 Etc I don't I don't what I'm

saying here is that I don't think it's

the kind of cutting cycle where you need

to run for the hills you need to be a

little bit selective here uh but it's

it's not a a an O 08 style crash or

anything it's it's not anything near

that uh you need to watch the

ramifications of dollar Yen coming lower

you need to watch the watch the

ramifications of a weak labor market uh

and you need to assume a time lag

between interest rate cuts and when they

work absolutely so uh to keep on top of

all this obviously you can check out all

our research F research.com all our

tactical bets and ideas for traits you

can follow Andreas myself and Twitter

for more on

that not much left to say this weekend

add been a great show we'll uh be back

next week with even more coverage on uh

on these topics and a glimpse into uh

the new macro regime for the months of

September yeah I I think we kind of

warned where things I think so I think

so people can read between the lines out

there but anyway yeah absolutely thanks

a lot for watching we'll be back next

week

it's a brilliant brilliant event and

you'll come away with lots of new ideas

and a better understanding of this

incredible exponential

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