September 2024 comment

An eventful month with a plethora of themes impacting global markets. Geopolitical temperature continued to rise as the Middle East conflict officially opened a new front between Hezbollah and Israel, with the latter managing to eliminate a significant cohort of the Shia militant leadership. The most significant risk barometer – oil – was unfazed by subsequent Iranian launches and instead knocked down by economic slowdown and increased supply expectations elsewhere.

In the US, the Harris x Trump debate added to the Democrat catchup in the presidential race, whilst a weaker employment report triggered premature recession concerns. Nevertheless, the Federal Reserve decided to add some insurance to the beginning of its cutting cycle, opting for a larger 50 basis point adjustment whilst keeping the next moves firmly tied to incoming data.

Across the Atlantic, the ECB and SNB both went for another 25 basis point cut whilst further east saw restraint from the Bank of Japan and quite the opposite from the People’s Bank of China, which announced a broad monetary stimulus package to stem the current economic drag.

After a few months of reshuffling, the portfolio was positioned to benefit from a disinflationary environment with a notch down in growth: a trimmed equity indices long together with a slight long in bonds and short commodities – especially in energies and industrial metals. The impulsive China rally in the industrial metal complex, energies and grains hit our positioning and tipped many trades towards their exit levels. We see the moves more as an aggressive readjustment of positioning after the surprise appearance of the policymaker safeguard than a guarantee of structural resurgence of Chinese demand, which will continue to be weighed down by a prolonged aging and deleveraging process. If authorities don’t follow through with decisive fiscal support that materially nudges the demand side, there should be a partial retracement of the recent large moves.