Tuesday, November 15, 2022

Morning Note: China, A Not-Small Positive Going Forward

Last night's log entry:


I listened to all of Lael Brainard’s Bloomberg interview today… As expected she was notably dovish relative to several other Fed members, including Powell… The equity market action (up) while she was talking confirmed her relatively accommodating tilt… Nevertheless, stocks rolled over late in the session, closing notably lower.

Last Thursday’s monster rally may have pulled forward a good chunk of what’s left of Q4’s rally… The fact that today’s advance couldn’t hold despite Brainard and last evening’s bullish news around China’s property sector says US stocks may have gotten a bit ahead of themselves right here… The next week or two will be telling.

As I type (7:31pm), however, Chinese equities are continuing to rally, as investors have legitimate reason to anticipate continued stimulus and a marked reduction of covid restrictions in the months to come… A 3-hour in-person meeting between Xi and Biden today that was reported to have been constructive is no doubt helping the rally along… US equity futures are catching a bid (Nasdaq 100’s up 0.60%) this evening as well.

So, here’s the thing with regard to China; despite what some would have markets believe – and despite the lack of investor-friendly language coming out of the 20th National Congress – Xi does not desire to exit the world stage; he, in my view, is nowhere near ready to use military force in Taiwan; he's anxious to craft an end to covid-zero, and he fully aims to play some serious economic catchup in 2023… 

I.e., while other headwinds will indeed persist (not the least being above-Fed-target inflation throughout 2023, and, on balance, beyond), China will likely be a not-small positive for the global economy going forward…
Indeed, that bullishness out of Asia carried over into this morning... And then, adding fuel to the fire, October producer prices came in softer than expected -- global stocks, and stock futures, immediately doubled their gains on the news. 

It’ll be interesting to see (amid softening inflation reads) the degree to which Fedheads push back against what amounts to a market-induced loosening of financial conditions. 

Stay tuned. 

Asian equities rallied overnight, with 11 of the 16 markets we track closing notably higher.

Europe's green this morning as well, with 13 of the 19 bourses we follow trading up as I type.

US stocks are ripping higher to start the session: Dow up 444 points (1.32%), SP500 up 1.78%, SP500 Equal Weight up 1.63%, Nasdaq 100 down up 2.52%, Nasdaq Comp up 2.42%, Russell 2000 up 1.79%.

The VIX sits at 23.72, down 0.04%.

Oil futures are down 1.40%, gold's up 0.01%, silver's down 1.11%, copper futures are down 0.36% and the ag complex (DBA) is down 0.32%.

The 10-year treasury is up (yield down) and the dollar is down 0.56%.

Among our 36 core positions (excluding options hedges, cash and short-term bond ETF), 30 -- led by Dutch Bros, AMD, MP Materials, Amazon and emerging market equities -- are in the green so far this morning. The losers are being led lower by oil services companies, ag futures, base metals futures, silver and Vietnamese equities.

"We are all, in a way, similarly handicapped, unable to recognize the same idea when it is presented in a different context. It is as if we are doomed to be deceived by the most superficial part of things, the packaging, the gift wrapping.

Taleb, Nassim Nicholas. Antifragile

Have a great day!

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