Comment of the Day
Video commentary for July 11th 2022
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: Dollar surges, bond yields contract, recession risks jump, oil steady, stock markets weak in constant currency terms.
Email of the day on imminent recession risk
What’s your view of global recession in late 2022 or 2023? thanks for given some information on this.
My view - Thank you for this question which may be of interest to the Collective. Financial conditions are tightening almost everywhere so recession risks are certainly rising. The dilemma for investors is we are only two years on from the pandemic panic, so it is very early to think about recession risk. Nevertheless, it is a question we need to deal with because exogenous factors are more relevant today than at any time in recent memory.
Global Strategy Weekly
Thanks to a subscriber for this report by Albert Edwards for SocGen. Here is a section:
The commodity complex is now seeing a collapse in prices, and this shows great similarity to what we saw in mid-2008. Although the oil price decline is slower and lagging, likely because of the Ukraine war, other industrial commodity prices are in virtual freefall. Soft-landing advocates must now face the overwhelming evidence of economic collapse and extricate their heads from the sand. ¢
Despite the fallout from the Ukraine war, agricultural prices too have also imploded, and that will sound a note of caution for those who think the oil price cannot fall as quickly as other industrial commodity prices. With the oil price having slid from $125/b to under $100 in a month, it should not be long before the yoy comparisons are negative, as with food prices.
Headline CPI inflation will likely turn negative, and the inflation narrative will then evaporate (temporarily), so trigging a collapse in US 10y yields back below 1%. What a shock that will be!
My view - A link to the full report is posted in the Subscriber's Area.
China Stocks Drop Most in a Month on Covid Flareups, Tech Fines
This article from Bloomberg may be of interest to subscribers. Here is a section:
Chinese stocks had their worst day in about a month as a Covid resurgence, combined with fresh fines for the country’s tech giants, sent investors running for the door.
The Hang Seng China Enterprises Index, a gauge tracking mainland firms listed in Hong Kong, slumped 3.1%, its biggest loss since mid-June. Tech heavyweights, property developers and electric-vehicle makers were among the biggest drags.
A slew of bad news hit the Chinese market over the weekend and Monday morning, including regulatory fines on past transactions done by Alibaba Group (NYSE:BABA) Holding Ltd. and Tencent Holdings (HKG:0700, OTC:TCEHY) Ltd., a rejection by China Evergrande Group’s bondholders on a proposal to extend debt payment, and a warning by a prominent investor’s wife that a key lithium maker’s stock is overvalued.
The selloff is a reminder that the nation’s Covid Zero policy and lingering uncertainty toward tech crackdowns remain key risks for investors betting on a sustained rebound in Chinese shares. The Hang Seng China gauge has recorded just one positive session in the last eight after rallying nearly 30% from a March low.
My view - The pandemic continues to be a major factor in the daily life of China, even as the rest of the world moves on. The reality of a large population with little immunity and the threat of rapidly evolving strains are growing more infectious suggests the quarantine system will slow the advance but can never overcome it.