Monday, November 7, 2022

Morning Note: 'For Now' Investors Buying the China Rumor...

Friday saw quite the rally, particularly in asset classes and regions that sit prominently in our core portfolio mix.

While the jobs number was billed to be a big needle-mover come last Friday, the rally -- across primarily commodities and foreign equities -- in our view can be mostly explained by persistent rumors that China is diligently crafting a plan to exit its economy-stifling "covid-zero" policy over the next few months.

Well, at a press conference Saturday, Chinese health officials pushed back aggressively by vowing to "unswervingly" stick to the country's zero covid approach.

Thing is, as I suggested in Saturday's video, while indeed Chinese authorities clearly did not intend to make public any preliminary plans/preparations, of course they're contemplating how indeed they will get their nation back to some semblance of normalcy in the not too distant future... I.e., it's inevitable, and Friday offered up a snapshot of what to expect from markets when the inevitable occurs.

Evidence that China's leaning to a more lenient posture -- despite pushback from authorities -- came from the running of an annual marathon in Beijing on Saturday that had been shuttered for the past two years... Xi's in person meeting with top German officials last week and news that they're "working on plans to scrap a system that penalizes airlines for bringing virus cases into the country" are two additional clues worth mentioning.

Here's from Bloomberg (Friday) on the latter:

"The State Council, which oversees China’s bureaucracy, recently asked government agencies including the civil aviation regulator to prepare for ending the so-called circuit-breaker mechanism, said the people, asking not to be identified because the matter is sensitive. The system sees airlines banned temporarily from specific routes into China for one-to-two weeks, depending on how many Covid-positive passengers they bring in to the country. A similar mechanism for Hong Kong was halted in July."

And this:

"In another sign China is at least cognizant of the impact of its restrictions at the border, officials are debating whether to reduce the amount of time people coming into the country must spend in mandatory quarantine, Bloomberg News reported in October. Bureaucrats are looking at cutting the period to two days in a hotel and then five days at home, people familiar with the matter said. That’s down from 10 days of isolation on entry into the country, which includes a week confined to a hotel room."

For now, investors are continuing to buy the rumor, as they swooped in quickly on an initial dip at last night's Asia open.

And, here we go, tomorrow is mid-term election day!

Stay tuned...

Asian equities rallied overnight, with 13 of the 16 markets we track closing higher.

Same for Europe so far this morning, with 17 of the 19 bourses we follow trading up as I type.

US stocks are green to start the session: Dow up 119 points (0.37%), SP500 up 0.25%, SP500 Equal Weight up 0.28%, Nasdaq 100 up 0.
04%, Nasdaq Comp up 0.02%, Russell 2000 up 0.06%.

The VIX sits at 25.46, down 3.71%.

Oil futures are up 0.05%, gold's down 0.06%, silver's up 0.45%, copper futures are down 2.28% and the ag complex (DBA) is down 0.12%.

The 10-year treasury is down (yield up) and the dollar is down 0.45%.

Among our 35 core positions (excluding options hedges, cash and short-term bond ETF), 21 -- led energy stocks, financial stocks, communications stocks, Eurozone equities and Asia-Pac equities -- are in the green so far this morning. The losers are being led lower by base metals futures, MP Materials, Brazil equities, utilities stocks and cyber security stocks.

"The distant is the great, and the near the little. But the little near controls man, rather than the distant great."

--Dixon G. Watts

Have a great day!


  1. Thanks Marty! China is always interesting. Foxconn, the maker of iPhone for Apple, went through turmoil. Workers were literally walking out of the factory to avoid further lock down. Who knows what China is up to? I would whether live poor in a democratic society than live rich in a communist society.

    1. You bet Sam. Yeah, saw that re; Foxconn... Pretty clear I think that China looks at even the relative mildness of the current variant and fears a complete opening up would literally explode their under-served (relative to the size of the population) healthcare system