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Headline
The share of RMB cross-border settlement continues to rise.
The internationalization of the RMB benefits from the US interest rate hike.
China's exports of gasoline and diesel have decreased.
The sales area of commercial housing is at its lowest level since 2016.
After 2017, China exported a large amount of goods to the United States through Southeast Asia.
Foreign investors will continue to accelerate their purchases of US stocks.
The crisis in the German real estate industry has deepened.
India rejects using the Chinese yuan to settle oil costs.
Russians transfer a large amount of foreign currency deposits.
The key factor in the financial crisis is not the value of debt/GDP, but its drastic changes.
The London nickel market has accumulated a large amount of short positions.
China
China has increased its efforts to promote the renminbi as an alternative currency for international payments, especially in the field of trade. This is particularly attractive for any country seeking to bypass Western sanctions. Since 2021, the share of the RMB in China's cross-border settlement has been increasing, with the settlement share of goods trade rising from 15% to 23%, and the settlement share of service trade rising from 21% to 29%.
Source: Natixis
Since 2022, the internationalization of the RMB has also benefited from the rise in interest rates in the United States. Given the high borrowing costs of the US dollar, many debtors have turned to using the Chinese yuan for financing or refinancing, resulting in a sharp increase in the Chinese yuan's share in overseas loans and bond issuance.
Source: Natixis
According to customs data released on Wednesday, China's gasoline exports in September decreased by 21% from an 8-month high to 1.09 million tons; Diesel exports decreased by 6.4% from a 5-month high to 1.18 million tons. As the economy continues to recover and domestic consumption faces a peak demand season, Chinese refining companies prioritize strong domestic demand, limiting overseas sales of gasoline and diesel. In September, China's apparent oil demand surged by 17% compared to the same period last year, reaching a record high of 15.24 million barrels per day. Previously, regulatory authorities had informed refining companies that with the government's renewed efforts to limit carbon emissions, export quotas would not be issued this year. So far this year, the government has issued an export quota of approximately 40 million tons, compared to 37.3 million tons for the entire year of 2022.
Source: Bloomberg, Marginal Lab | FinGraph Atlas
In April, China's electricity generation reached 745.6 billion kilowatt hours, a year-on-year increase of 7.7%, continuing to be at the highest level in history during the same period. The cumulative power generation from January to September was 6.62 trillion kilowatt hours, a year-on-year increase of 4.2%. The hydroelectric power generation in September increased by 39.2%, but the cumulative hydroelectric power generation in the first nine months still decreased by 10.1%. The thermal power generation (mainly generated by coal-fired power) increased by 2.3% in September.
Source: Bloomberg, Marginal Lab | FinGraph Atlas
The total retail sales of consumer goods in the past 12 months have reached a historical high, but the actual retail sales after CPI adjustment are still slightly lower than in 2021.
Source: Marginal Lab | FinGraph Atlas
From June to September, the sales area of commercial housing was 84.806 million square meters, continuing to be at the lowest level since 2016.
Source: Marginal Lab | FinGraph Atlas
After 2017, China's exports to Southeast Asia continued to increase, which is consistent with the performance of Southeast Asian countries' exports to the United States.
Source: Gavekal Research
The Bloomberg Industry Research (BI) China Real Estate Index hit a new low since 2009 on Wednesday, with Time China Holdings and Xuhui Holdings Group leading the decline among its constituent stocks. The index has fallen by over 40% so far this year, and is set to record its largest annual decline since the 2008 financial crisis.
Source: Bloomberg
United States
According to data from the US Treasury Department, foreign investors have purchased US stocks at the fastest pace in the past six months since 2021. Goldman Sachs predicts that foreign investors will net buy $150 billion of US stocks in 2023 and another $100 billion in 2024.
Source: Goldman Sachs
According to Bloomberg analysts' estimates, in the third quarter financial report, the five largest companies in the S&P 500 Index - Apple, Microsoft, Alphabet, Amazon, and Nvidia - are expected to have an average profit increase of 34% compared to the same period last year. The overall performance of the S&P 500 index is not as strong. Without these five giants, their profits would have decreased by about 5%.
Source: Bloomberg
3. According to Goldman Sachs data, American households (plus hedge funds) currently own 9% of the US treasury bond bond market as a whole, compared with 2% at the beginning of 2022.
Source: Goldman Sachs
4. In 2022-23, the number of treasury bond transactions participated by families will increase significantly. Since the households in the US treasury bond holdings data strangely include hedge funds, the substantial increase in household treasury bond purchases may reflect the increase in hedge fund basis arbitrage transactions.
Source: Goldman Sachs
In the past six months, due to the pressure on credit quality caused by rising interest rates and economic weakness, the number of double-digit yield bonds in the US junk bond market has surged. According to Bloomberg data, bonds with a yield of no less than 10% have increased by approximately $45 billion, reaching $325 billion, accounting for approximately 30% of the total market value of the entire speculative grade index. Nearly 139 billion US dollars came from the communication industry.
Source: Bloomberg
6. Everyone is preparing for a rainy day, except for Americans. During the pandemic, household savings in the United States and other high-income economies surged as consumers cut spending and government stimulus policies brought in more income. Recently, there has been a polarization in savings behavior, with the savings rate in the United States falling below the pre pandemic average, while savings rates in other countries remain above the pre pandemic average. Therefore, American consumers have been spending the "excess savings" accumulated during the pandemic, while the excess savings abroad have not yet been utilized. This different behavior helps to explain why, while the GDP levels of other high-income economies continue to be far below historical trends, the GDP of the United States can still return to the pre pandemic trend trajectory.
Source: WSJ
7. From Taylor Swift's concert to NFL matches and the peak tourist season at Disney theme parks, ticket prices for offline entertainment activities have risen at an alarming rate this year, triggering a phenomenon that analysts call 'enrichment'. This year, many families have spent a large amount of money they accumulated during the pandemic to participate in offline activities. But now, some Americans are starting to feel inadequate. A survey conducted by The Wall Street Journal on American consumers shows that nearly 60% of Americans say they have to reduce their spending on live entertainment activities this year due to rising costs. About 37% of respondents said they cannot afford the rising prices of the activities they want to participate in, while over 20% of Americans said they are willing to borrow to continue paying for their favorite entertainment activities.
Source: WSJ
Europe
1. Due to the record breaking scale of project cancellation, builders are more pessimistic about the future than ever before, and the crisis in the German real estate industry is further deepening. A survey by the Ifo Institute, headquartered in Munich, showed that 21.4% of residential builders reported being affected by the cancellation of construction projects in September. This is the highest level since the record began in 1991, and it is also higher than the 20.7% in August. Like many other countries in Europe, housing construction in Germany has also been hit by soaring financial and material costs due to rising interest rates and inflation. The lack of construction activities may exacerbate the shortage situation in the coming years. Ifo stated in the report that there is no improvement in the short term.
Source: Bloomberg
ASML, the technology company with the highest market value in Europe, announced that the order volume in the third quarter decreased by 42% compared to the previous quarter, to 2.6 billion euros (2.8 billion US dollars), which is only 58% of the 4.5 billion euros expected by analysts. The decrease in order volume indicates weak market demand for the company's manufacturing equipment at a time of overall decline in the semiconductor industry. The data also shows that ASML's sales revenue in the third quarter was 6.67 billion euros, with an estimated 6.73 billion euros. China accounted for 46% of the company's quarterly sales, compared to 24% in the previous quarter and 8% in January March.
Source: Bloomberg
Britain
According to data from the UK Office for National Statistics, the Consumer Price Index (CPI) increased by 6.7% year-on-year, which is the same as last month. Economists had previously expected inflation to fall back to 6.6%. The money market's bets on further interest rate hikes are generally stable, with a 30% chance of a 25 basis point hike next month and a more than 60% chance of a hike by early next year. The market expects to cut interest rates by 40 basis points next year, with the first rate cut in November.
Source: Bloomberg
Asia-Pacific
The divergence on Wall Street regarding the direction of the yen's next steps is increasing. Goldman Sachs Group, Mizuho Americas, JPMorgan Chase and Bank of America expect the yen to hit its lowest level against the US dollar in over 30 years; Other institutions believe that the yen will strengthen. The core of their disagreement is their different views on the prospects of the US economy and its impact on the US dollar. Those who believe that the Federal Reserve will maintain high interest rates expect the US dollar to strengthen against the Japanese yen. In contrast, many companies that anticipate a surge in the yen believe that a recession in the US economy and a weakening of the US dollar are inevitable.
Source: Bloomberg
Japan is the world's second largest stock market after the United States, but investors often pay little attention to it. When it comes to Japan, you may hear 'lost decades', as Japan's stock market has yet to recover from its peak in 1989. However, the current profits of Japanese companies are much higher than the level in 1989.
Source: Jeffrey Kleintop
emerging market
After experiencing a total outflow of nearly $5 billion in funds for five weeks, ETFs tracking emerging markets finally have a breathing opportunity. Bloomberg data shows that in the week ending October 13th, the total inflow of funds into emerging market ETFs listed in the United States was $228 million, while the outflow from the previous week was $3.1 billion. The largest inflow of ETF funds invested in India was $132.5 million.
Source: Bloomberg
2. The weight of energy in the basket of consumer price indices in emerging markets is generally significantly higher than that of developed economies. In the median of emerging markets, energy prices (including transportation fuels and household electricity) account for 10% of the consumer price index basket. In the United States, energy prices account for 6.9%.
Source: S&P Global
HSBC Holdings believes that India's recent impressive economic growth is unlikely to replace China as the main growth engine of the world economy in the short term. The agency predicts that the gap between the two major economies will continue to widen in the future, reaching $17.5 trillion by 2028. This is equivalent to the current economic size of the European Union. Last year, the difference between the two was $15 trillion. HSBC analysts wrote that the main reason is India's extremely lagging investment spending. Even assuming that the Chinese economy is no longer growing and India's investment expenditure growth is three times higher than the recent average, it will take another 18 years for India's investment expenditure to catch up with China. Currently, China accounts for approximately 30% of global investment, while India has a share of less than 5%.
Source: Bloomberg
4. This year, India became the largest importer of Russian maritime oil, and after some Western countries suspended importing crude oil from Russia, Indian refiners rushed to purchase these crude oil at discounted prices. But after the United States and the European Union imposed a price cap of $60 per barrel on Russian oil, refiners often encountered problems in settling oil trade with Russia, forcing buyers to use alternative currencies such as the Chinese yuan and the UAE dirham to purchase goods that exceeded the limit due to rising oil prices. However, two officials from the Indian Ministry of Finance stated that the Indian government is uncomfortable with using RMB for settlement, and therefore, at least seven batches of imported goods from Russia have not been paid yet.
Source: Reuters, Bloomberg
Qatar is expanding its liquefied natural gas (LNG) project and has signed two ultra long contracts with Total Energy and Sinopec in the past year, with delivery expected to begin in 2026. With the turmoil in the energy market caused by the Ukrainian war, Qatar's decades of LNG supply contracts have become a more attractive option, driving many countries to prioritize energy supply security over green goals. It is expected that Qatar's liquefied natural gas production capacity will increase by 64% to 126 million tons per year by 2027. Currently, Qatar has signed contracts with China, Germany, Bangladesh, and France to produce 15.3 million tons of LNG annually. But S&P Global pointed out that the United States now accounts for 43% of the European LNG market, while Qatar only accounts for 16%. Qatar faces challenges in expanding its market share in the European LNG market as US producers are quickly signing long-term supply agreements with importers to reduce their dependence on Russian natural gas.
Source: Bloomberg
Since the beginning of the war in 2022, Russians have withdrawn approximately $47 billion in foreign currency deposits from their domestic banking system and transferred these funds to foreign bank accounts.
Source: The Overshot
Global
The key factor triggering the financial crisis is not so much the level of debt/GDP as the drastic changes in that level. From a global perspective, financial crises usually occur after a significant increase in debt/GDP (regardless of its absolute level), which means that a large amount of borrowing in the short term has not generated the necessary economic activity.
Source: Pictet
2. This chart analyzes mid cap and large cap stocks in 76 countries (regions), and calculates how many stocks in the market have reached their highest (blue) or lowest (red) point in a rolling 52 week period. We see that red is sharper than blue, indicating that pessimism is global, while optimism is localized.
Source: MacroBond
In the 1990s, central banks around the world began publicly announcing clear inflation targets to enhance their credibility. In 2012, under the leadership of Ben Bernanke, the Federal Reserve also joined the ranks and officially adopted a 2% target. As global inflation continues to rise, these goals are facing unprecedented tests. This chart shows how long a country has deviated from its central bank inflation target by one percentage point. Mexico and the United States have been together for almost three years. Only South Africa and Indonesia are currently less than one percentage point away from their inflation targets.
Source: MacroBond
Commodities and Energy
After last year's out of control short selling incident, investors returned to the London nickel market and made large-scale bets that nickel prices would fall. This trend may lay the foundation for a new round of volatility after this year's sharp decline. According to data from the London Metal Exchange (LME), there has been a cumulative short position of $4.6 billion in LME nickel contracts, with a net short position size of $2 billion. In terms of amount, this level sets the highest record since the availability of data in 2018, while in terms of tonnage, the mismatch level is close to the historical highest set in 2019.
Source: Bloomberg
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