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Portfolio Watch: Preparing for a nasty September due to liquidity

Two overwhelming themes are at the top of our watchlist for September: fading USD liquidity and a sudden halt in Chinese activity. Here’s how we plan to address them.
2024-08-30
<a href="https://stenoresearch.com/author/ulriksimmelholt/" target="_self">Ulrik Simmelholt</a>

Ulrik Simmelholt

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Portfolio watch

It’s been a relatively uneventful week, and we haven’t been overly active as we await September trends for our portfolio.

Examining our underlying model package, we’ve identified two major themes worth noting for the month ahead: the sudden weakness in China and the impending drawdown in USD liquidity.

Starting with China, we’ve highlighted how pollution levels are plummeting, while congestion data from ports, roads, and metros declined significantly in August. It seems the Chinese economy has come to a sudden halt, corroborated by the sharp drop in the crack spread between Singapore Gasoil and Dubai Crude, a strong directional indicator of Chinese energy demand.

This development does not bode well for commodities in September.

Chart 1: China is slowing as seen in crack spreads on Asian energy

Two overwhelming themes are at the top of our watchlist for September: fading USD liquidity and a sudden halt in Chinese activity. Here’s how we plan to address them.

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