CHINA MARKETS “All The Single Ladies”“All the Single Ladies, all the Single Ladies!” But this time, it’s not just about the Beyonce party—China’s Singles’ Day has become a retail juggernaut, propelling consumer spending and supporting October’s robust retail sales figures. However, let’s not forget the bigger picture: while China’s domestic consumption is showing signs of life, export strength is really what’s stepping up to the plate. Export activity seems to be front-running potential tariffs as manufacturers ramp up shipments in anticipation of possible trade barriers. The real question is how does China “ Trump Proof” the economy?A dramatic hike in U.S. tariffs would be like pouring gasoline on China’s already smouldering economic fire. With the economy barely keeping its head above water, particularly in consumer sectors, further pressure from the U.S. would push Beijing to the brink.China’s somewhat resilient export strength is largely front-running sales ahead of potential tariffs—almost like a last-minute scramble before the storm. But that silver lining may not last. As tariff talks heat up again, China’s leadership must pivot sharply to avoid further economic deterioration. They’ll likely double down on stimulus measures, perhaps doubling down on infrastructure spending or even ramping up fiscal support to keep the lights on.But here’s the catch: while China’s stimulus and policy shifts are a short-term buffer, they won’t paper over the long-term pain of an escalating tariff war. With Trump 2.0 possibly eyeing bigger, badder tariffs, the question is: How much longer can China juggle trade and economic growth while navigating these geopolitical minefields?For now, it’s a game of waiting and watching, but don’t be fooled—this economic dance is only getting more complicated as the U.S. ratchets up the pressure and China scrambles to maintain its grip on growth.The timing of potential U.S. tariff hikes — possibly kicking off as soon as early 2025 — is a ticking time bomb for global markets. With the looming threat, investors are already on edge, speculating on the chaos that could ripple through the supply chain. The stakes? Massive.The White House’s plan to impose even harsher tariffs could send shockwaves across the global economy, but especially to China, whose recovery is fragile at best. In the context of a faltering economy, any escalation of trade friction would undoubtedly drag down an already fragile consumer sentiment and further dampen growth prospects.But here’s the twist: while the immediate impact of the tariffs could feel like a gut punch to China, Beijing isn’t sitting idly by. They’ve got a strategy in the works to counteract the U.S. pressure — think targeted stimulus, foreign currency interventions, and perhaps even a more aggressive push for global trade partnerships to bolster their economy.While the tariffs might dominate the headlines, the response — and how both markets and governments react — will be the true spectacle. The world is bracing for the next phase of the trade war, and it’s clear: the 2025 tariff showdown will be one for the history books.The colossal elephant in the China shop? The housing market, which accounts for a staggering 25% of the nation’s economic activity, is poised to continue being the biggest anchor on growth. Despite efforts to stabilize the sector, real estate remains a slow-motion trainwreck. Developers are drowning in debt, and buyers, already grappling with an affordability crisis, are holding off on purchasing. The drag from this sector is palpable, with ripple effects on everything from consumer confidence to industrial output. As much as Beijing tries to fan the flames of recovery through stimulus, the sheer weight of a bloated housing market threatens to stifle any hopes of a quick rebound. This is the ticking time bomb that could redefine China’s economic trajectory for years to come.The property market’s still stuck in a rut, and now the big, bad “Bogie Tariff Man” is looming over China’s trade surplus. It’s the perfect storm, and all eyes are on how Beijing responds to these mounting pressures.
NUTS & BOLTSWall Street isn’t sitting idly by, waiting for the credits to roll on this economic thriller. It’s already in full swing, recalibrating and gaming out how the shifting economic landscape—powered by resilient consumer spending, a hotter-than-expected job market, and looming trade headwinds—could reshape the market narrative. With tariffs on the horizon and the global recovery still fragile, investors are already pricing in the potential risks, recalculating their portfolios, and rethinking the value of everything from tech stocks to commodities.But the real wildcard? How the Federal Reserve reacts to the growing pressure from both domestic inflation and international trade uncertainties. Will they stay the course with their rate hikes? Or will they blink, throwing a curveball into the market’s expectations? The anticipation is palpable, and the markets are teetering on the edge, waiting for the next move in this high-stakes game. The drama is unfolding, and Wall Street is betting it’ll be a wild ride.The Treasury market is sending out some serious spooky vibes right now, pricing in a rockier road ahead for the Fed, inflationary pressures, and the U.S. economy. The bond market’s got its eyes wide open, factoring in a potential slowdown that could shift the narrative on rate hikes, with yields climbing like a haunted house rollercoaster. The fear? A double whammy of inflation staying stubbornly high while the Fed might have to pump the brakes on its tightening campaign sooner than expected, just to keep the economy from tipping over into recession.Treasury yields, particularly at the long end, are seeing some erratic movements as traders brace for what could be a bumpy ride over the next 12 to 18 months. With the U.S. growth story cooling down, the market’s hedging its bets, questioning whether the Fed will have the guts to stay the course, or if it’ll pivot to a more dovish stance if the economy really starts to falter.The bond market, traditionally the canary in the coal mine, is flashing yellow, if not red, signaling that the worst of the uncertainty is far from over. Inflation, which was supposed to be transitory, is hanging around longer than expected, and now the focus shifts to whether the Fed can bring it down without choking off economic growth. One thing’s for sure—the coming months could be a wild ride for Treasuries, and everyone’s bracing for what could be a true test of the Fed’s resolve.Just two months ago, the bond market was betting that inflation over the next five years would hover around a tame 1.9%. Fast forward to Thursday, and that forecast has taken a sharp turn, now pushing expectations above 2.3%—a sign that inflationary pressures are far more persistent than anticipated.This sudden shift is sending shockwaves through the Treasury market, with investors scrambling to recalibrate their outlooks. With yields spiking and the Fed’s next move in the balance, the bond market is sending some serious “spooky” vibes as it factors in the possibility of a bumpy economic landing. Rising inflation and the relentless strength of the U.S. dollar are creating a potent cocktail of uncertainty, and the market’s nervous energy is palpable.In short, we’re entering a critical moment where the bond market is starting to doubt the “soft landing” scenario, and as a result, risk appetite is faltering. If inflation remains sticky and the Fed continues its aggressive stance, the pressure on the broader economy could mount, leaving investors to brace for more volatility ahead.
FOREX MARKETSThe U.S. dollar is testing the limits of an overextended positioning, which likely contributed to a sharper risk-off rally in the Japanese yen as traders adjusted their positions heading into the weekend. Adding fuel to the fire was the market’s anticipation of Governor Ueda’s speech on Monday, which has many traders cautious and reducing risk ahead of potential shifts in Japan’s monetary policy. This positioning dynamic, combined with a sizable drop in oil prices, created the perfect storm for a yen rally, highlighting the sensitivity of the yen to both global risk sentiment and domestic central bank cues.To be clear, I don’t currently hold a USD/JPY position, but in light of Donald Trump’s election victory, I do believe we’re likely to test the upper bounds of the BoJ’s so-called “danger zone.” This is where the market perceives the Bank of Japan might feel pressured to intervene or adjust policy if the yen strengthens too much. With Japan’s economic growth still fragile, largely driven by domestic consumption rather than external demand, the BoJ is facing a delicate balancing act.While we exited our pre-election short EUR/USD position on Thursday slightly above 1.0500, my bearish stance on the EUR/USD persists. I had anticipated that my projection for lower oil prices might boost the EUR/USD and provide a suitable re-entry point above 1.0600, but no such luck—conditions in Europe remain troubling, with France intensifying austerity measures and Germany grappling with political unease over debt limits.Herein lies the issue: even though Fed Chair Powell appears to be signaling a potential pause in rate hikes, this shift hasn’t injected any new upward momentum into the dollar. This development might be the harbinger of the typical seasonal downtrends in the dollar’s strength and could also indicate the start of a decline in the Trump-inspired dollar buying frenzy.We find ourselves in a precarious “what do we do now?” zone. Last Thursday, I closed my position, believing the dollar is ripe for a correction after being overstretched in its long rally. Yet, considering President Donald Trump’s policy mix, it’s challenging not to maintain a fundamentally long position on the U.S. dollar. Looking ahead, we need to identify the next vulnerable target—whether it’s the Swedish Krona, a return to the Euro, or capitalizing on a dip in USD/JPY if the Bank of Japan continues to remain on the sidelines. The strategic pivot will depend on these evolving macroeconomic cues and central bank signals in the coming week.
CHART OF THE WEEKTrust me the chart below does not bode well for the year end turn as the total amount of primary-dealer equity financing in repos has hit the highest level since April 2013. Absent a significant equity market selloff, funding pressures are likely to remain a persistent thorn in the side of financial markets. Dealers are still on the hook to fund a growing pile of equity collateral, which is driving financing costs higher and putting further strain on liquidity. I remember getting paid the equivalent of 45 % in cash market on an overnight swap when dollar dried up over the turn so this is something worth keeping an eye on.
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