(These are solely the views & opinions of KVP, & do not constitute any trade or investment recommendations. By the time you synthesize this, things may have changed.)
Macro Dragon WK # 32: New Month, Same Noise? Aug likely key events will be US NFP this wk, then US CPI, Powell at Jackson Hole, Debt Ceiling + Delta Variant Shuffle
Top of Mind…
- TGIM & welcome to WK #32…
- Have a great start to the new month & wk ahead folks.
- Continuing themes are of course Fed on Tapering [Jackson Hole, Aug 27-28], concerns on Delta variant & level of restrictions-lockdowns coming back (i.e. parts of US blinking with Masks back, etc), US debt ceiling, China regulations, China & HK securities sliding (in particular tech) & wrap up of earnings.
- August is last full blown summer month in the Northern Hemisphere, so that participation & liquidity is still likely more noise than signal.
- Wk ahead likely focus on US NFP on Fri, as well as ISM data on Mon & Wed, with final PMIs across the board!
- China Caixin PMI already in with a miss 50.3a 51.0e, continuing to show that the 2nd largest economy keeps cooling off & likely raising the delta (& gamma) of accommodative policy action in the 2H of the year.
- For context the HSI was down -10% for the month of Jul, its worst monthly drawdown since Oct 2018. Since 2009 (post GFC) the HSI has only had 6 other months of double digit drawdowns or c. 4.3% of the 139 months.
- Point is, we are in an obvious oversold territory – only thing is, a number of folks, KVP included thought we were there 2-3wks back… For the Long Side of the book, keep building that line, investing in China has always had regulatory & policy risks, nothing has changed there.
- So we need a combination of volumes to drop on the down days, natural price consolidation and/or positive policy response, as well as follow throughs on positive price action -i.e. cannot have the Thu massively up to Fri massively down price action that we saw last wk.
- And yes, sentiment is abysmal & there are no silver lining clouds – outside of time decay – that KVP can currently see. So for now, watch the price action & volume.
- And yes, Weibo [WB $50.40] continues to be up +38% YTD in absolute terms (c. +90% in relative value terms vs. say JD Health Int [6618 HK], or c. +60% vs. Tencent [700 HK]), which is an echoing dislocation that we’ve talked about in a number of places:
Macro Dragon WK # 31: The Fed, China Tech [DIDI -42%, Tencent -12% but Weibo +44%!], Earnings from TSLA, AMZN, FB, MSFT plus Robinhood IPO [HOOD]
Macro Dragon Reflections: Divergence in China Tech Names, WB +47% YTD vs. range of -6% to -18% to -27% on Tencent, JD.Com & DiDi
- Lastly we continue to see a disconnect between real rates breaking lower at -2%, whilst gold is still failing to push higher at $1811. Meanwhile BTC which had a nice break to c. $42,600 is now back again south of the pivotal $40,000 lvl. Def. watch both of this spaces – as renewed lockdown & restrictions in the US that spur further fiscal aid (more stemies) would be a boost for risk assets, & in particular crypto & gold (i.e. debasement, excessive debt & diversification theme – all of which are structural & long-term in nature).
- Central Banks: RBA 0.10% e/p, BSB 5.25%e 4.25%p, BoE 0.10%e/p, RBI 4.00% e/p
- Brazil expected to lean the charge with 75bp hike, could def. do +100bp as inflation keeps going higher with last print at +8.35%a +8.06%p. RBA, BoE & RBI are expected to be a wash.
- Quite bit of Fed speak, yet likely key will be Vice Chair Clarida speaking at the Peterson Institute on Wed.
- Econ data: US ISM mfg. PMI 60.8e 60.6p, ISM Serv. 60.5e 60.1e, AHE YoY 3.9%e 3.6%p, U/R 5.7%e 5.9%p & NFP 895K e 850 K p. China CPI & PPI will also be key this wk.
- Holidays: AU is out this Mon on a bank holiday.
SG will be out next Mon given National Day, Wuhuu!!! KVP’s adopted home country turns 56 yrs young! Pretty remarkable that such a young nation – younger than most people grandparents & even parents – has achieved so many things that the vast majority of nations have failed to do. Also happy on the developments on vaccine front, knocking on c. 60% who’ve received both does, whilst over 75% have received their first.
- Other: Yes, yes we are all suffering from Covid Fatigue… hold the line. This too shall pass. Rather than focusing on what we don’t have or cannot control, lets thrive on what we can do & the abundance that we do have.
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