China follow through/Earnings comments

China followed up yesterday's housing and financial market stimulus news with today's 30 bps cut in their 1 yr medium term lending facility (MLF) rate to 2%. This was the biggest cut in terms of basis points since 2016. This is a facility that is used to lend money to banks. Chinese stocks continued to rally off very depressed levels with the Shanghai comp up by 1.2%, though still down 2.6% on the year. The Hang Seng was higher by .7% and by 12.2% year to date. The offshore yuan did rally to below 7 overnight but backed off above. 

As no government stimulus, whether monetary or fiscal, is ever free, this has risks too. On the stock market side, it's essentially a way to encourage buying stocks on margin but offset by hopes that higher stock prices will encourage more organic buying via savings. On the housing side, lowering mortgage rates paid and also down payment requirements hopefully will put a floor on falling home prices and further eat into the still excess inventory that needs to be absorbed. 

The area of strength in China has been travel/tourism and the continued recovery in Macau is proving this out. Inside Asian Gaming is reporting that the hotels are mostly fully booked ahead of the upcoming Golden Week. We remain bullish and long some of the Macau casino stocks as the Vegas of Asia has the opportunity to expand its reach outside of the Greater Bay Area and Mainland and further touch other populations in Asia which they are marketing to. https://www.asgam.com/index.php/2024/09/25/macau-hotel-sector-expected-to-hit-new-post-pandemic-highs-as-the-national-day-golden-week-approaches/

Offshore Yuan (lower it goes, the higher its value vs USD)

To quantify the move in industrial commodities yesterday in response to the China news, the CRB raw industrials index rallied by .7% to the highest in 2+ months. While still well off its highs, since the Fed cut rates by 50 bps, the implied inflation rate in the 5 yr TIPS is up 10 bps to 2.08%.