US equities suffered a late session drop on Monday as Fed speakers remained in focus ahead of a relatively light economic week. Fed Governor Christophe Waller was characteristically hawkish in his comments, while Vice Chair Lael Brainard speaking in Washington, also stressed that much additional work is left to be done still. With US growth yet to fall off a cliff, make no mistake, inflation is still at the fulcrum of market expectations as board members continue to push back a bit on market pricing.
Rather than chase equities higher, cagey investors are waiting to set shorts – I think the window for highs is from now to the Thanksgiving day weekend – so time to start piecing in the downside now.
China continued to see a barrage of upside activity as reopening measures are a clear equity buy signal. The combination of underweight positioning & the short momentum unwind in China Tech hints at yielding more tactical upside risk to Mainland and Hong Kong markets. While keeping in mind this best-in-class asset was the one that no one owned only a week ago.
A sea change has arrived after China’s more progressive policy evolution – related to loosening covid restrictions and measures to support the real estate market arrived unexpectedly. Hong Kong’s unique position as a conduit between China and global markets should attract foreign flows tangentially to the reopening narrative. But appetite from foreign investors is already showing a market turn here.
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Given the surge in Omicron cases ahead of flu season, I would not be surprised to see another major Chinese city implementing lockdowns again. China’s reopening can drive rallies in oil by shifting perceptions of forward demand, but not in the face of snap lockdowns.
Rolling lockdowns across heavily populated areas in China penalize mobility and oil demand even more than economic activity. Hence, oil markets are hyper-sensitive to mobility restrictions in the world’s largest oil importer.
China’s biggest online shopping festival on Nov. 11, the so-called Double 11, also reflects weakness in the domestic economy: volumes of merchandise shipped fell 20% y/y. And this is a negative throughput for petrol demand magnified through the lockdown lens. Hence proof is in the pudding that most people are spending less compared with the previous years amid concerns about mobility restrictions.
Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT
