Monday, October 24, 2022

Morning Note: The Other Pivot to Watch For...

Data out of China last night, while better than forecast, certainly didn't inspire the post-Party Congress rally many, yours truly included (early on), anticipated... In fact, according to the headlines, Xi's successful cementing of authority supremacy by surrounding himself with loyalists, while not delivering a strong stimulus surprise, nor offering up any light at the end of the zero-covid policy tunnel, sent the communist nation's stocks reeling in last night's Asia session... While, simultaneously, it appeared, stealing the oomph from what was an impressive early-session rally in other Asian markets, and in US equity futures.

Funny thing about the relationship (the connection) between politics and markets; while the party in power's platform may on the surface appear to be everything investors would typically reject, make no mistake, at the end of the day, it will do what it can to keep its nation's markets afloat, and indeed competitive, on the global stage.

Of course I'm referring to present-day China and I'm assuming that Xi's intent is to ultimately dispense with his draconian zero-covid policy (of course that one's a for-sure, it's just a matter of when), and intervene, either directly or via additional stimulus (or both) in a manner that assuages the fears of presently-hesitant global investors who'd otherwise (at this juncturebe, at a minimum, dipping their toes into the beaten-down stocks of the world's second largest economy -- trading at a mere 9 times earnings.

Now, as bullish as that may sound, I must warn you, when Xi ultimately pivots (and that, for the moment, rather than a pivot by the Fed, is the pivot to watch for), and we're then looking at China reengaging on the world stage, there are serious implications for commodity markets, energy in particular, that will have inflationistas rightfully screaming from the rooftops... And that's a problem for central banks that are beginning to, albeit subtly, express concern over the potentially systemic consequences of tightening monetary policy too far too fast... Not that global stocks won't, along with commodities, rally hard on that news (odds are they will), but when the dust settles, well... we'll cross that bridge when we get to it.

Stay tuned... 

Asian equities leaned slightly green overnight, with 9 of the 16 markets we track closing higher.

Europe's liking the UK's Prime Minister pick this morning, with all but one of the 19 bourses we follow trading up as I type.

US stocks are mixed to start the session: Dow up 215 points (0.70%), SP500 up 0.28%, SP500 Equal Weight up 0.49%, Nasdaq 100 down 0.37%, Nasdaq Comp down 0.46%, Russell 2000 down 0.14%.

The VIX sits at 30.46, up 2.59%.

Oil futures are down 0.20%, gold's down 0.61%, silver's down 1.35%, copper futures are down 1.25% and the ag complex (DBA) is down 0.05%

The 10-year treasury is down (yield up) and the dollar (coming way off its premarket high) is up 0.20%

Among our 34 core positions (excluding options hedges, cash and short-term bond ETF), 16 -- led by AT&T, consumer staples stocks, healthcare stocks, utility stocks and water stocks -- are in the green so far this morning. The losers are being led lower by emerging market equities, Brazil equities, Asia Pac equities, base metals futures and uranium miners.

With regard to global leaders and what they're apt to do:
"Preferences are optional and subject to constraints, whereas constraints are neither optional nor subject to preferences."  -- Papic, Marko. Geopolitical Alpha 

Have a great day!


  1. Marty: Thanks for the updates! Xi reminds me a lot of Mao. He is not as smart as I thought he is. He dismantles China's Technology Industry (BABA is gone), destroys China's economy, and makes life miserable for the whole world because of the supply chain disruption. Hong Kong stock market dropped more than 6% overnight. It was all over the social media that Xi removed the previous President from the meeting in front of the whole world.

    1. Indeed Sam, Xi has surprised me as well... Question now being, does he really want to continue down a road that has the rest of the world hesitating to continue to, or to further, engage? That of course runs directly counter to, from an economic sense, what he claims to be after long-term... He does have real world constraints... Time will tell...