- China has delayed retail sales and macro productivity data release.
- The markets got off to a good start in a busy week for US bank earnings.
- A reversal in the UK tax policy has calmed the UK government debt markets.
China
With the twice-a-decade national congress currently underway in Beijing, the Chinese government has indefinitely delayed the release of critical macroeconomic data scheduled for yesterday.
In an unusual move for the government, closely followed retail sales and production data have been withheld. That has left China watchers scratching their heads. No news is not necessarily good news.
Those concerned with the state of the Chinese economy under an extended pandemic-led lockdown will inevitably assume the worst.
Australia
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Despite a forewarning from the Rio Tinto ASX:RIO (RIO) chief executive
of a slowdown in the economy of Australia’s largest trading partner, Australia’s markets bounced in Tuesday morning trade.
A sharp rally overnight in the US and the UK has boosted the Australian markets. The technology sector found its feet on Monday as the NASDAQ finished over 3% higher.
Tech leaders
Microsoft NASDAQ:MSFT (MSFT) has announced slowing growth and job cuts.
That will do little to imbue any feeling of warmth or connectedness to the financial markets that serve you; more unemployment equals higher stock prices.
Moderation in the wage and price inflation expectations under a slower economy and weaker labour market has the market pricing in fewer interest rate rises. In the interest rate-sensitive high-growth technology sector, easing the rate-hike cycle takes the pressure off stock prices.
The boost in the NASDAQ overnight is sending Australian tech leaders Atlassian NASDAQ:TEAM (TEAM) and Block (d.b.a. Afterpay) ASX:SQ2 (SQ2) up over 8% on the day.
UK Government about-face
The UK government has backtracked on tax cuts, propping the longer-dated UK debt market and giving further assurance of future funding. In the current paradigm, removing tax cuts for citizens is a welcome move for the markets.
The GBP was up nearly 2% on the policy about turn, and the FTSE was close to 1% higher. The FTSE, priced in dollars, is up by a marginally below yet robust 3% gain on the day.
The markets are cheering future government funding prospects, further illustrating the outsize role of government policy in market valuations under the current post-pandemic high debt burdens.
New Paradigm
With international government debt likely surpassing $300t and the OECD average near 100% of GDP, central bankers are increasingly overshadowed by their fiscal policy partners in government when it comes to the influence over market movements.
Historically, the lowering and raising of interest rates throttle the economy machine. As we exit the pandemic with massive additional borrowings, governments must provide further assurances around future funding and debt servicing to keep the price mechanics in order. As recently demonstrated in the UK.
With the balance of power shifting away from the central bankers at such a critical juncture of high inflation, the markets are turning to other market participants and stakeholders to provide guidance on price direction.
Large employers in multi-national technology and banking conglomerates will find a greater amplitude for their voice on the world markets, alongside legislators and ministers securing future funding for a growing debt burden.
Making sense of it all
In the weeks and months ahead, the night might seem like day and up like down as the pivot points and price representatives are shuffled amongst the senior policymakers and stakeholders.
