China has the ressources to manage a deleveraging of its housing market
While the six largest Chinese real estate developers have interest bearing debt worth $291bn and total liabilities of $1.06trn, it is still manageable for the Chinese government. China managed the NPL crisis of large Chinese banks in the 1990s and this potential crisis is on the same scale. China’s credit market and housing market is not interconnected enough with global financial markets to cause a contagion effect as far as I can see and judging from market reaction. If China does not succeed in a controlled deleveraging of the housing market and an orderly nationalization of failing real estate developers then it could severely cut into the growth outlook which is negative for equities and global growth, but we are not talking about a new global financial crisis. The current energy shock in Europe, which we wrote about last week, makes us more nervous as it has the potential for knock-on effects into 2022 hitting food supplies and prices.
Biggest selloff since October 2020 and VIX jump
Many have pointed to the fact that the 50-day moving average has been broken. I subscribe to the view that it is a random number – why not the 48-day moving average? But technically, the 50-day moving average has been the area when S&P 500 futures have bounced many times since October last year and thus require some more analysis. As of this writing, S&P 500 futures are 2.3% below their 50-day moving average, the biggest spread since October last year, and given the success of ‘buying-the-dip’ over the last 11 months the question is whether the cavalry is coming again. It is quite clear in today’s session that the last 20 minutes of the cash equity trading session has attracted the ‘buying-the-dip’ crowd given the sizeable 1.3% bounce into the close.