Comment of the Day
Video commentary for November 1st 2022
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: unfounded speculation China will ease COVID-zero rules sparks rebound in resources, UK begins to run down the balance sheet, Fed meeting tomorrow which I expect to be hawkish, Amazon breaks lower.
Brazil Markets Rally on Signs of Peaceful Transition of Power
This article from Bloomberg may be of interest to subscribers. Here is a section:
Brazil’s stocks and its currency rallied on signs that President Jair Bolsonaro’s administration is preparing for a peaceful transfer of power after losing Sunday’s election to Luiz Inacio Lula da Silva.
The president’s communications chief said that Bolsonaro won’t contest the election, according to Reuters. Meanwhile, a press official for Lula’s Worker’s Party said Bolsonaro’s top aide, Ciro Nogueira, offered a meeting place for transition teams from the outgoing and incoming presidents.
That would be a relief for investors who have been waiting for the incumbent, who had cast doubt on the integrity of the election during campaigning, to concede defeat.
Eoin Treacy's view - It is looking increasingly likely that Jair Bolsonaro will move into a vigorous opposition rather than contest the election result. Unruly trucker protests notwithstanding, this is a clear positive for the trajectory of governance, although the bar for what constitutes good governance has been lowered significantly over the last decade.
China's Last Offshore Property Bond Havens Are Crumbling
This article from Bloomberg may be of interest to subscribers. Here is a section:
The latest moves have dragged even more junk dollar notes from Chinese property companies into distress, with 94% now trading below 70 cents on the dollar. That market was until just years ago one of the most lucrative bond trades globally. But it all began to unravel after a nationwide clampdown started in 2020 on leverage and real estate speculation, and has snowballed into record defaults by developers including China Evergrande Group.
The contagion is even reaching property giants that still have investment-grade ratings including China Vanke Co., the nation’s second biggest developer by sales. Its note due 2027, which was trading above 80 cents just a month ago, fell 4 cents Tuesday in the worst two-day drop ever to an all time-low of 40.3 cents.
“Now with some presumably better-off developers getting into trouble, people start to worry about a contagion to non-state developers,” said Raymond Cheng, head of China and Hong Kong research at CGS-CIMB Securities. “It’s not just a confidence issue, and developers’ liquidity conditions are only getting tighter in the future given sales have been slower than expected.”
And
As refinancing costs surge in global debt markets, China’s property sector has at least $292 billion of onshore and offshore borrowings coming due through the end of 2023, raising the specter of even worse payment pressure to come. There’s $53.7 billion borrowings still due the rest of 2022, followed by $72.3 billion of maturities in the first quarter of next year.
“We have seen no improvement in terms of the funding for private-sector developers,” Bank of America Corp (NYSE:BAC). economist Helen Qiao said on Bloomberg Television Tuesday. “The stimulus was not strong enough to get them out of the current liquidity trap, and therefore how exactly they can really survive raises many questions.”
Eoin Treacy's view - It is reasonable to expect that most of the property debt issued through Hong Kong in US Dollars will be defaulted on. Any stimulative measures designed to prop up the property market and local developers will be aimed exclusively at domestic investors. Foreign investors are way down the line in terms of priorities for China.
US Job Openings Post Surprise Increase, Keeping Pressure on Fed
This article from Bloomberg may be of interest to subscribers. Here is a section:
The surprise pickup in vacancies highlights unrelenting demand for workers despite mounting economic headwinds. The persistent imbalance between labor supply and demand continues to underpin robust wage growth, adding to widespread price pressures and reinforcing expectations for yet another large rate hike on Wednesday.
The latest increase in openings erased much of August’s slide, which, at the time, had suggested a notable moderation in labor demand.
“After the shock of last month’s report, the September JOLTS data is returning to a familiar story: demand for workers remains robust,” Nick Bunker, head of economic research at Indeed Hiring Lab, said in a note. “By all the key metrics in this report, the labor market is resilient.”
Eoin Treacy's view - There is no easy way to address a shortage of workers because someone is going to be upset by whatever solution is suggested. Immigration is the most expedient but it comes with significant political pitfalls and will invariably change the culture of wherever migrants congregate most.
Email of the day on institutional versus retail volume
Eoin - does the source of daily volume in the stock market (buying or selling) influence your opinion of market strength or weakness at any point in time? Are there particular data sources you review which help you determine if institutional buyers/sellers are especially active? Does the trade-off between retail and institutional demand matter?
I always look forward to reviewing your insights on where markets may be heading in the near term...particularly in this ongoing era of excessive central bank intervention and manipulation.
Thank you.
Eoin Treacy's view - Thank you for your kind words and this email which may be of interest to the Collective. I don’t look at specific volume data but part of my mental process is to think about the market from the perspective of as many market participants as possible.
The Chart Seminar London November 21st and 22nd 2022
We are living through fast moving markets so the next venue for The Chart Seminar will be November 21st and 22nd this year in London.
In the meantime, if you have any questions, would like to attend, or have a suggestion for another venue please feel to reach out to Sarah at sarah@fullertreacymoney.com.
The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non-EU residents are not liable for VAT). Annual subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.
Eoin's personal portfolio: stock market index short initiated October 26th
One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary daily until there is a change.