Articles by Chun Wang, CFA, PRM Director of Multi-Asset Strategies

We call the current problem in Hong Kong, Hongkongoma, a complex problem underpinned by an ever-widening wealth gap and aggravated by an anti-mainland sentiment as a result of HK’s lost sense of superiority. The Extradition Bill is just the latest trigger.

The Core CPI is slightly ahead of consensus. Recent depreciation in the Chinese Yuan is disinflationary. Given the seasonal tendency for better economic numbers in the second half of the year, inflation would likely rise moderately along with the economy once we turn the corner.

A hawkish Fed cut, immediately followed by Trump’s new tariffs, caused quite a bit of market indigestion, a clear reminder of how quickly things can change.

The recent rate cut managed to bring policy uncertainty back into the market by two seemingly harmless words—”mid-cycle adjustment.”

The headline CPI numbers are in line while Core CPI is slightly ahead of consensus. Higher tariffs are not showing through import prices yet. Global slowdown underpins recent inflation path.

Our Risk Aversion Index fell in June but stayed on the “Higher Risk” signal generated in May.

The pattern of sharp sell-offs followed by equally sharp rallies continued in June. Most risky assets recouped nearly all the losses suffered in May, and then some.

Our Risk Aversion Index rose sharply in May and generated a new “Higher Risk” signal. We continue to monitor EM assets closely, given their leading tendency. Both Chinese stocks and the Yuan have stabilized a bit lately, which is encouraging... but they are not out of the woods yet.

While the 10Y-3M curve inversion does warrant extra attention, movements in other parts of the curve also need to be taken into consideration.

The latest CPI numbers are slightly lower than market expectations. Oil prices need to be watched closely as further oil weakness would likely drag down inflation expectations too. Concerns about new tariffs causing higher inflation are misplaced.

Our Risk Aversion Index ticked lower in April and stayed on the “Lower Risk” signal. Most risky assets participated and the rally was broad-based. The only fly in the ointment is EM assets. The recent weakness in both Chinese stocks and the Yuan is certainly worth paying attention to.

Banks’ lending standards for C&I loans (typically to large businesses) tightened quite a bit in Q1, which bodes ill for both investment and overall economic growth going forward.

The latest CPI numbers are largely in line with market expectations. The recent rebound in oil prices certainly helped the recovery in inflation expectations. Recent U.S. economic numbers have been decent overall and the latest uptick in the U.S. ISM index also offers support for inflation.

With most major central banks now turning dovish, our view on credit is more constructive. We still view pull-backs in EM assets as better entry points. Investment grade corporate bonds are also attractive, and we maintain a neutral view on Munis and High Yield bonds.

The Fed not only signaled no rate hike for the rest of 2019, but also committed to unwinding its balance-sheet reduction program, starting in May and ending in September. The market took it one step further and priced in a rate cut in the second half of 2019.

While global central banks’ dovish turn provides a supportive backdrop for the risk rally, short-term overbought conditions are everywhere too.

The biggest near-term wild card is the infinitely confusing and hopelessly unpredictable Brexit.

The latest CPI numbers are largely in line with market expectations. The Fed pause and other central bank easing moves are positive for risk markets. Watch cyclicals/defensive relative performance and ISM for near term direction.

With the Fed now pausing its rate hikes, and the PBoC recapitalizing banks and reactivating lending, our view on credit has turned from defensive to neutral, with a more constructive bias. One of our biggest concerns, global central bank liquidity withdrawal, has been eased by the recent policy moves.

A significant policy move by China’s People’s Bank of China (PBoC) has gone largely unnoticed.