Summary of Key Points from the Conference Call Industry Overview - **Industry**: Chinese Exports and Trade Dynamics - **Key Focus**: The current state and trends of Chinese exports, particularly to the US, and the implications of recent negotiations between the US and China Core Insights - **Export Stabilization**: Exports to the US have stabilized at a low rate, with a notable contraction of -17.4% year-on-year (YoY) in container departures for the US during the 15 days ending September 17, improving from -24.1% YoY a week prior [1][14] - **Negotiation Outcomes**: Recent negotiations in Spain have led to breakthroughs regarding TikTok, suggesting that risks of US-China tariff re-escalation may be easing, which could positively impact China's export outlook [1][1] - **Cargo Throughput Improvement**: Overall cargo throughput in China increased by 8.5% YoY in the week ending September 14, up from 7.2% YoY the previous week, indicating a steady expansion in exports [1][4] - **Container Export Volume**: The container export volume turned positive at 4.0% YoY in the week ending September 12, compared to a decline of -3.5% YoY the week before, signaling potential growth in exports for September [1][10] Additional Important Details - **US Import Bills**: The year-on-year decline in US import bills for seaborne imports from China has eased, indicating a potential recovery in demand [1][7] - **Future Outlook**: There is an expectation that concerns regarding China-US exports may shift towards the strength of US demand into the fourth quarter of 2025 [1][1] - **Low Base Effect**: The anticipated improvement in export growth is partly attributed to a low base from the previous year, suggesting that growth rates may appear more favorable in the short term [1][1] This summary encapsulates the key points discussed in the conference call regarding the current state of Chinese exports, the implications of US-China negotiations, and the overall outlook for the industry.

Summary of Key Points from the Conference Call Industry Overview - The report focuses on China's trade performance in August, highlighting a moderation in trade growth compared to previous months [1][5][9]. Core Insights and Arguments 1. **Trade Growth Moderation**: - China's exports increased by 4.4% year-over-year (yoy) in August, down from 7.2% in July. Imports rose by only 1.3% yoy, compared to 4.1% in July [2][9]. - Sequentially, exports decreased by 1.0% seasonally adjusted (sa) non-annualized in August, while imports fell by 2.0% sa non-annualized [9]. 2. **Trade Surplus**: - The trade surplus for August was reported at US$102.3 billion, an increase from US$98.2 billion in July [3][9]. 3. **Regional Export Performance**: - Exports to the EU and ASEAN showed growth, while exports to the US, Latin America (LatAm), and Africa declined. Notably, exports to the US fell by 33.1% yoy in August [10][11]. 4. **Import Trends**: - Imports from the US decreased by 16.0% yoy in August, while imports from the EU fell by 1.8% yoy. Overall, imports from major trading partners declined sequentially [10][12]. 5. **Product Category Insights**: - Exports of tech-related products, such as chips and automobiles, saw significant growth, with chip exports rising by 32.8% yoy. However, exports of metals and textiles declined [11]. - Import values for automobiles dropped sharply by 50.5% yoy, while agricultural product imports increased [12]. Additional Important Information - The report indicates that fewer working days in August likely contributed to the overall moderation in trade growth across major trading partners [1]. - The detailed breakdown of trade by country and product is expected to be released on September 20 [9]. - The report emphasizes that the data only covers major trading partners and products, suggesting a limited scope for the analysis presented [9][14]. This summary encapsulates the key findings and insights from the conference call regarding China's trade performance in August, highlighting both the challenges and areas of growth within the trade landscape.

Summary of Key Points from the Conference Call Industry Overview - The report focuses on China's trade performance in July, highlighting significant growth in both exports and imports, which exceeded consensus expectations [1][6][10]. Core Insights and Arguments 1. **Trade Growth Acceleration**: - China's exports increased by 7.2% year-over-year (yoy) in July, up from 5.8% in June. Imports rose by 4.1% yoy, compared to 1.1% in June [1][6][10]. - The trade surplus for July was reported at US$98.2 billion, a decrease from US$114.8 billion in June [3][9]. 2. **Regional Export Dynamics**: - Exports to the EU and most emerging market (EM) economies rebounded, while exports to the US, Japan, and ASEAN countries declined [10]. - Specifically, exports to the US fell by 21.7% yoy in July, and imports from the US decreased by 18.9% yoy [10]. 3. **Product Category Performance**: - Export values for metals and tech-related products increased, while textile/apparel and housing-related products saw declines [11]. - Notably, chip exports rose by 29.2% yoy, and automobile exports increased by 18.6% yoy [11]. 4. **Import Trends**: - The import value of energy goods and iron ores remained negative due to lower prices compared to the previous year. However, the import volume of crude oil rose by 11.5% yoy [12]. - The increase in crude oil imports may be attributed to stockpiling activities [12]. 5. **Forecasts for Money and Credit Data**: - RMB loans are expected to increase by RMB 300 billion in July, reflecting a likely surge in bill financing. Year-over-year growth of outstanding RMB loans is projected to edge down to 7.0% [13]. - Total social financing (TSF) stock is anticipated to rise by 9.1% yoy, driven by significant government bond issuance [13]. Additional Important Insights - The report emphasizes that the trade data is influenced by base effects and should be considered as one of many factors in investment decision-making [6]. - The detailed breakdown of trade by country and product will be released on August 20, providing further insights into the trade dynamics [9]. This summary encapsulates the key points from the conference call regarding China's trade performance, highlighting both opportunities and challenges in the current economic landscape.

Investment Rating - The report provides a forecast for various asset classes, indicating a bearish outlook for equities and a mixed outlook for fixed income and commodities [2]. Core Insights - The report highlights significant expected returns and volatility across different asset classes for Q2 2026, with equities showing a range of potential returns from -20.7% to 24.4% depending on market conditions [2]. - The report notes that the S&P 500 is forecasted to have a base case return of 4.7% with a volatility of 19% [2]. - Commodities, particularly Brent and Copper, are expected to have substantial volatility, with Brent showing a potential return range from -23.6% to 83.4% [2]. Summary by Sections Equities - S&P 500: Bear case -20.7%, Base case 4.7%, Bull case 15.9% [2] - MSCI Europe: Bear case -22.3%, Base case 7.3%, Bull case 24.4% [2] - Topix: Bear case -23.3%, Base case 5.0%, Bull case 17.3% [2] - MSCI EM: Bear case -26.7%, Base case 0.1%, Bull case 13.1% [2] Fixed Income - UST 10yr: Bear case 7.6%, Base case 12.1%, Bull case 17.2% [2] - US IG: Bear case -2.9%, Base case -0.1%, Bull case 1.2% [2] - US HY: Bear case -4.3%, Base case 0.1%, Bull case 2.1% [2] Commodities - Brent: Bear case -23.6%, Base case -8.3%, Bull case 83.4% [2] - Copper: Bear case -21.6%, Base case -4.3%, Bull case 14.8% [2] - Gold: Bear case -20.6%, Base case -6.5%, Bull case 12.3% [2] Currency - JPY/USD: Bear case 14.9%, Base case 7.6%, Bull case -2.5% [2] - EUR/USD: Bear case -5.4%, Base case 3.9%, Bull case 8.2% [2] - GBP/USD: Bear case -1.3%, Base case 6.0%, Bull case 10.4% [2]

Investment Rating - The report does not provide a specific investment rating for the RMB or related assets Core Insights - The RMB is unlikely to appreciate significantly due to persistent deflationary pressures and the need for accommodative monetary policy [6][9] - Historical parallels between Japan's currency appreciation in the 1980s and the current situation in China are drawn, but the report argues that the RMB will not follow the same path [3][6] - Significant RMB appreciation would exacerbate deflation rather than alleviate it, and sustainable economic rebalancing requires more than just currency appreciation [6][10] Summary by Sections Currency Appreciation and Trade Tensions - Currency appreciation alone is insufficient to resolve complex trade tensions between the US and China, which involve multiple issues beyond currency [10][11] - Historical instances of RMB appreciation did not lead to a narrowing of China's trade surplus with the US [12][13] Deflationary Pressures - China is currently facing intense deflationary pressures, and significant currency appreciation would further harm corporate profits and aggregate demand [23][25] - The report highlights that exporters, particularly SMEs, would suffer from translation losses due to currency appreciation [24][25] Economic Rebalancing - Achieving sustainable economic rebalancing in China requires structural changes in growth models rather than just currency appreciation [41][42] - Policymakers in China prefer investment-driven growth, which complicates the shift towards consumption-led growth [41][42] Historical Context - Japan's experience with currency appreciation in the 1980s led to a loss of export competitiveness and did not result in sustainable economic rebalancing [32][46] - The report emphasizes that Japan's currency appreciation did not lead to a significant increase in private consumption as a share of GDP [54][53]

Investment Rating - The report maintains a base case view that oil prices will drift lower, with forecasts of US$66 per barrel for 2025 and US$58 per barrel for 2026 [3][18]. Core Insights - The recent spike in crude oil prices, rising over 15% to approximately US$75 per barrel, is attributed to geopolitical tensions, particularly fears of conflict between Israel and Iran [2]. - The report suggests that the inflationary impact of a sustained US$10 per barrel increase in oil prices will be limited across Asia, with an average CPI impact of 0.2 percentage points [5][12]. - The analysis indicates that the impact on GDP growth from rising oil prices is marginal, estimated at an average drag of 0.1 percentage points [16]. - Major energy importers in Asia, such as Thailand and Korea, are expected to bear the brunt of higher oil prices, with trade balances negatively affected [17][21]. Summary by Sections Oil Price Impact - A sustained increase in oil prices could lead to a surge in prices to US$120-130 per barrel in extreme geopolitical scenarios [3]. - The report highlights that the initial inflationary impact from a US$10 per barrel increase is manageable, with economies like the Philippines and Thailand experiencing more noticeable effects due to efficient pass-through mechanisms [5][6]. Inflation and Monetary Policy - The report concludes that the current oil price increase will not significantly disrupt the rate cut cycle in Asia, as inflation is expected to remain within target ranges for most economies [18][20]. - For economies like Korea, Malaysia, Indonesia, and Singapore, oil prices in the range of US$75-90 per barrel could complicate monetary policy responses [12][20]. Trade Balance and External Accounts - The report notes that the impact on trade balances varies across the region, with major energy importers facing a higher burden from increased oil prices [16][21]. - The report emphasizes that the current external accounts are stronger compared to previous periods of energy price shocks, which should help mitigate some negative effects [17].

June 16, 2025 01:13 PM GMT Morgan Stanley Research Global Morgan Stanley Global Macro Forum Geopolitical Tensions in the Middle East – Our Early Thoughts on Implications for the Economy and Markets June 16, 2025 Serena Tang – Global Head of Cross-Asset Strategy | Strategist Seth Carpenter – Chief Global Economist Brian Gibbons – Head of Energy Credit Research | Credit Analyst MORGAN STANLEY & CO. LLC Martijn Rats – Global Commodities Strategist | Equity Analyst and Commodities Strategist Marina Zavolock – C ...

June 16, 2025 02:38 PM GMT Cross-Asset Spotlight | Global M Update Signals, Flows & Key Data Erika.Singh-Cundy@morganstanley.com +44 20 7425-0960 A weekly summary of key cross-asset monitors, data, moves, and models tracking sentiment, fund flows, and positioning. Key highlights from last week: Exhibit 1: Morgan Stanley forecasts Bear Base Bull Bear Base Bull Equities S&P 500 5,977 4,900 6,500 7,200 -16.7% 10.0% 21.7% 19% 0.54 MSCI Europe 2,169 1,610 2,250 2,620 -22.6% 6.9% 24.0% 16% 0.44 Topix 2,756 2,100 ...

Core Viewpoint - The simultaneous cooling of U.S. and Japanese bond auctions, along with rising interest rates, indicates tightening global liquidity, which may lead to systemic liquidity shocks in the U.S. market as new U.S. debt issuance increases following the resolution of the debt ceiling issue [1][18]. Global Liquidity Tightening - Since June 2022, major developed countries' central banks have initiated quantitative tightening (QT), resulting in a significant decline in the asset-to-GDP ratios of the U.S., Japan, Europe, and the UK by 12.1%, 14.0%, 29.3%, and 17.6 percentage points respectively by the end of 2024 [1][3]. - The total liquidity provided by these central banks has reverted to pre-pandemic levels, while the pressure on global asset valuations has exceeded pre-pandemic levels [1][3]. - The market capitalization of U.S. listed companies has increased by 82.9% from $38.5 trillion to $70.3 trillion since 2019, while nominal GDP has only grown by 35.4% [1][6]. Impact on U.S. Market - The tightening of global liquidity is particularly evident in the U.S. market, where the dollar has become more of an investment currency rather than a financing currency due to high borrowing costs [7][9]. - There has been a notable increase in net foreign investment in U.S. assets over the past two years, indicating reliance on overseas funds for dollar asset valuations [7][9]. Risks in Japanese Bond Market - The Japanese bond market is showing signs of vulnerability, with rising yields and decreasing demand for Japanese government bonds (JGBs) as the Bank of Japan reduces its purchases [11][13]. - The tightening of yen liquidity may force Japanese financial institutions to withdraw from dollar assets, exacerbating the pressure on U.S. assets [11][17]. Liquidity Risks and Potential for QE - The resolution of the U.S. debt ceiling is expected to lead to a significant increase in net U.S. debt issuance, potentially reaching $1.25 trillion from July to September, which could sharply tighten dollar liquidity [18][19]. - Rising interest rates and liquidity constraints may suppress U.S. equities and increase the pressure on Japanese financial institutions to divest from dollar assets, leading to systemic risks in the U.S. market [18][19].

Core Viewpoint - The article discusses the recent liquidity risks in the U.S. market due to the unwinding of basis trades by hedge funds, which may lead to a significant increase in U.S. Treasury yields and systemic financial risks [1][12]. Summary by Sections Basis Trading Overview - Basis trading involves arbitrage between the cash, futures, and repo markets of U.S. Treasuries, where investors buy cash Treasuries and sell futures to profit from the price difference [2]. - The cost of basis trading primarily consists of borrowing costs in the repo market, while the return is derived from the basis, which is the difference between futures and cash prices [2][6]. Risks of Basis Trading - The main risks associated with basis trading include: 1. **Repo Roll-Over Risk**: Increased borrowing costs if liquidity in the repo market tightens [6]. 2. **Margin Risk**: Potential losses if futures and cash prices diverge significantly [6]. 3. **Leverage Risk**: High leverage can amplify the aforementioned risks [6]. Current Market Conditions - As of Q3 2024, hedge funds hold approximately $2.06 trillion in long positions in cash Treasuries and have about $1 trillion in net repo borrowings, indicating a total basis trading volume between $1 trillion and $1.5 trillion [9][11]. - The market is currently characterized by high volatility, with the VIX and MOVE indices reaching recent highs, which may trigger increased margin requirements for hedge funds [12][16]. Supply and Demand Dynamics - The U.S. Treasury market is experiencing an oversupply, exacerbated by a new debt ceiling proposal that could increase the deficit by $5.8 trillion over the next decade [16][19]. - Weak demand, particularly from foreign investors, has been noted since late last year, which could further pressure liquidity in the market [16][19]. Geopolitical and Economic Factors - Escalating trade tensions and geopolitical risks may lead to capital outflows from the U.S., contributing to a potential "triple whammy" of declines in stocks, bonds, and the dollar [19][20]. - Hedge funds, as significant net buyers of Treasuries since the beginning of the balance sheet reduction, have substantial exposure across various asset classes, which could facilitate the spread of risks across markets [22][24]. Future Outlook - The likelihood of systemic financial risks is increasing, particularly with the potential for liquidity shocks following the resolution of the debt ceiling in May-June [26]. - The Federal Reserve may be compelled to restart quantitative easing (QE) to stabilize the market, which could further exacerbate wealth inequality and contradict current economic policies aimed at strengthening the middle class [26].