From our internal notes:
10/8/2024
The reopening of Chinese markets, after “Golden Week”, was met with some serious profit taking. Headlines suggest that it's due to a press conference held by the National Development and Reform Commission (NDRC) that did not unveil any details around the fiscal stimulus measures that the market got so euphoric over the past couple of weeks... Thing is, the NDRC would not have offered up such detail, as that’s not necessarily (particularly from an immediate-term perspective) within the purview of that particular entity.
I suspect that we will indeed see sufficient detail in the coming weeks, from the appropriate agencies, to solidify the recent bottom in Chinese equities... Clearly, a significant theme to glean from recent announcements is that stabilizing the equity market is presently job-1 among policymakers... That said, the recent runup was so extreme that I’d be surprised if it, in and of itself, hasn’t engendered some angst among policymakers -- as Chinese retail investors utterly poured into the on-shore market over the past 2 weeks... Echoes of the 2014/15 bubble have to be ringing in their ears at the moment. A calming down (decent pullback) would likely be welcome right here.
Today’s selloff (FXI) stopped (so far) right at the first key (38.2%) fib retracement of the recent rally… Although, given how parabolic the up move was, a further move lower — in the absence of intervening commentary from officials — would not surprise me right here.
VWO, the EM equity position that we added to recently (9/23) has given back 2.86% this morning, as I type… As of yesterday the position was up 8.75% during the 2 weeks since we added to it… but of course two weeks is not remotely the time horizon we’re concerned with.
Commodities, which have rallied nicely of late, are taking quite the hit this morning as well, even gold (which started the morning in the green) is off over 1% as I type.
US consumer stocks are all rallying nicely, our overweightings to staples and health care are effectively offsetting some of the hit we’re taking in EM and commodities this morning.
CPI on Thursday is the key data release this week… If it comes in soft, we’ll likely see an across the board rally (equities, commodities, bonds, etc.), as it’ll embolden the soft-landing narrative, and, presumably, allow the Fed to continue easing… If it comes in hot, markets will likely take it hard.
Beyond CPI, earnings season begins… Q3 saw a major downgrading of go-forward earnings estimates… Thus, the potential for positive surprises as we meander into Q4 are a distinct possibility.. Which, on net – notwithstanding (volatility-inducing!) election angst – will be bullish for equities.
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I just received the results of S&P Global’s Investment Manager Index for US equities (which I participate in).
The following snippet speaks to the recent rise in optimism, however, it appears that others in our space now share our longer-term macro concerns:
“...sentiment has become less negative than in September amid increased hopes for further interest rate cuts and reduced pessimism regarding the near-term macro outlook. Sector preferences are skewed toward defensives such as healthcare and utilities, with consumer discretionary remaining the most out of favor, underscoring the prevailing cautious mood.”
10/6/2024
This weekend’s macro exercise has me, albeit very slightly, tempering my near-term optimism… Yes, global liquidity has been rising notably (very bullish), nevertheless our financial stress index – due to downgrades to the MOVE Index and to Merrill’s Global Stress Index – dipped slightly into the red (somewhat heightened stress).
Equity market sentiment – due to a (2-pt) flip from net-short to net-long among SPX futures speculators (although slightly offset by a rising put/call ratio) – moved further into the greed (not bullish).
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