Macro Afternoon

Is sanity finally prevailing with Asian stocks up across the board today, presaging the end to the worst two days since February? No, its just exhaustion going into the weekend, so keep your shorts on! Chinese stocks are leading the recovery today but at the cost of increased volatility, while the selloff in USD has abated somewhat as FX markets remain relatively quiet.

The Shanghai Composite was all over the place but eventually has gotten the upper hand, currently up 0.7% at 2600 point, grappling with key support at this level. The Hang Seng Index is doing even better, shooting nearly 1.7% higher to 25684 points, still hugely below its previous support level at 26000 points, but it’s better late than never:

Eurostoxx futures are up about 0.8% so there will be a positive follow through in Atlantic markets tonight, with the four hourly S&P 500 chart suggesting a tentative bottom at 2740 points or so, Let’s see if it sticks:

Japanese stocks are very slowly recovering as Yen sold off slightly during the session, with the Nikkei 225 up nearly 0.5% to close at 22694 points, capping off a terrible week where it nearly wiped out all of this year’s gains. The USDJPY pair is slowly moving higher in a broadening triangle pattern, lifting above the 112 handle and setting up for a weak swing higher:

The ASX200 was relatively quite, only gaining about 0.2% to close at 5895 points in a week that super funds would rather forget about. This keeps it well below all its support levels and ripe for further selloffs as the market overreacts as it is want to do in these corrective phases.   The Aussie dollar continues its bounce off a tentative bottom just above the 70 handle, coming up against short term resistance and looking ready to break higher but watch the low moving average at 70.90 for signs of a reversal:

The economic calendar ends the week with a whimper, as the only release of note to keep an eye on – outside the volatility going around – is a consumer sentiment survey in the US (U of Michigan).

Have a good weekend!

Comments

  1. Public anger in China spreading as property prices drop | South China Morning Post

    https://www.scmp.com/news/china/society/article/2168025/public-anger-china-spreading-property-prices-drop

    Sales are usually brisk at this time of year, but so far the figures are grim – and people who’ve already bought are protesting against price cuts … read more via hyperlink above …

    … above via …

    Investing in Chinese Stocks—投资大中华地区股市: SCMP Covers Real Estate Rage

    http://investinginchinesestocks.blogspot.com/2018/10/scmp-covers-real-estate-rage.html
    .
    .
    The sudden tinge of fear among sellers in Hong Kong’s property market | South China Morning Post

    https://www.scmp.com/business/article/2168190/suddenly-theres-tinge-fear-among-sellers-hong-kongs-property-market

    A recent wave of price discounting for both residential and commercial properties indicates a softening in sentiment … read more via hyperlink above …

      • Imagine that. They have invested in a property bubble, and assume with great certainty that the government will step in with funding or extra policies to save their investment if values ever look like falling.

        Luckily no one from any other country would ever be that naive…!

      • I am not sure there is a single Chinese real estate market. Just as there are about 20 major real estate markets in the US, each of which are largely independent of most others, there are probably dozens of individual real estate markets in China. A market crash in Chengdu would have zero impact on the Shanghai real estate market for instance.

        I remember seeing it argued that what caused the systemic risk in 2007 in the US was what the bankers did to securitise the mortgages from all the individual real estate markets. Until 2007 there had never been an instance where all 20 major US real estate markets had gone into reverse at the same time (eg the crashes in Texas and Florida had no flow-on effects in New York or LA).

      • No idea about China but in the US it was very simple – defaults were caused nationwide by the simple fact of rising interest rates (including expiring teaser rates) on unserviceable loans.

        Yes the CDOs amplified the losses 100 times but the reason it collapsed was that people erroneously assumed there were 50 different markets, and so loans would not all start defaulting at once (or enough of them did). The CDOs were presumed solid because they contained “diverse” tranches of loans that would not all default at once. And hey presto they did default all at once. There was a common factor. That was the whole point.

        I don’t know much about Chinese housing markets but it is the most centralised, managed and top-down run-by-decree of all the world’s major economies. I would not adopt a starting presumption of many different markets without common contagious factors. In fact I would presume the very opposite.

      • Lmmao…. the Chinese RE machinations was a direct result of the American RE machinations for geopolitical reasons….

    • A notable thing about how the colonial authorities ran Hong Kong was the policy of benign neglect, where they for the large part gave market forces free rein. A consequence of that was that when the real estate (or the wig or the plastic flower) market crashed the collapse was severe and abrupt. Several times in the last half century Hong Kong property prices have crashed by 70% or so.

      The consistent application of the doctrine of benign neglect was broken by the first ethnic chinese Financial Secretary, Donald Tsang, who held that position before and immediately after the hand back of HK to China in 1997. When the Asian financial crisis struck soon after the hand-back Tsang intervened in the HK stock market in an attempt to prevent a crash of the stock market and economy. It was an unprecedented and outrageous intervention but through sheer luck he got away with it.

      It will be interesting if the mainland authorities step back and allow Hong Kong to go through one of its regular financial purges or if instead they insist that the HK authorities step in to calm the markets (there is a lot of well-connected mainland money stashed away in HK real estate).

  2. TailorTrashMEMBER

    Haven’t they realised that concrete once
    elevated into the sky takes on a deeper meaning
    and …super inflated VALUE ……

    .jeez …they should spend more
    time in Straya…,

  3. The Traveling Wilbur

    Well… I officially give up on predicting anything in this market. Whoever was buying today on the ASX (and lots were) has guts. And probably some entrails somewhere too. And a headless chicken.

    I do however look forward to it all blowing up for reals next week on Mon or Tues. Not that I’m predictioning anything, of course.

    • Nice to see the precious metals miners have a lift up. Might even get excited and deploy some funds that have been parked for what feels like forever.

      • The Traveling Wilbur

        Yep. And I wonder also if the other lifter is in stocks that would benefit from stronger Chinese (specifically) consumerism. Curious to know, but, sounds like hard work. And I’m too drunk for that (well I will be if I have my way).

    • Next time my stock gets near its previous high I think I’ll cash out. But I want to stay long USD. We can’t be far away from a big correction.

      • Indeed. I think many think like you do, which is why double-tops happen. Maybe sell just a bit earlier. But hey. My advice on timing things is at least as good as a dartboard…

  4. The Traveling Wilbur

    Roger Montgomery: “The ducks are lining up for a bear market.”.

    Ummm… surely it crossed his mind… surely?

  5. He’s been saying it for quite a while. I think he recently lost his regular spot on ABC radio after 3 spots in a row which could only be described as portents of doom.