Tuesday, 25 August 2015

A few macro thoughts today

A few macro thoughts today...

Chinese markets – Chinese market still clearly negative down over 7% at the time of writing as despite PBOC injecting CNY150 Bln (US$23bn) via its 7-Day reverse repos to help support banks, other chat that ‘Shanghai Margin Debt Declines To Lowest In Five Months’ implies money still coming out of the market via fear/margin calls. Also this report suggests China realising aggressive intervention maybe counterproductive:

China should wind down its stock market support program even if prices continue to fall, according to a commentary in a state-run official economic daily.

The front-page remarks in the Economic Information Daily sought Tuesday to reassure investors the Chinese economy wasn’t “that bad” and argued that disasters like the Asian financial crisis or the sub-prime mortgage debacle wouldn’t repeat. They came as stocks extended their steepest rout since 2007 on concern the government is paring back support for the market.

The writer, identified as Xu Gao, said the government has been addressing its problems with local government debt and the global economic situation wasn’t as fragile as it was two decades ago.
“The global stock plunge was more likely caused by emotions rather than fundamentals,” the commentary said in the paper owned by the official Xinhua News Agency. “It’s not good for the recovery of the economy to bring back the focus of quantitative easing to the stock market.”

The latter two factors noted above are ultimately positive BUT in the shorter-term not good for market volatility.  Also note the high cost of hedging the yuan...getting back into too much fear:

However this does not mean you have to be super bullish. Striking optimism hopes in Australia – given the above hmm!

(h/t @HaidiLun)

Nice emerging market performance chart showing the widespread performance malaise: 

One week VIX – bigger % change than in GFC!  Hmm, feels over the top.  

(h/t @WorthWray)

US volumes – all of this is happening on high volumes however.  Very un-August like.  

US interest rates  - FOMC voting member (and hawk) Lockhart still sees rate lift off in 2015 but says CNY, USD and oil all complicate outlook.  Data dependent etc.  Meanwhile world’s largest hedge fund takes a different view (link here).  My view remains as discussed in the last Financial Orbit Speaks that the fear of higher US interest rates may actually mean outperformance by the commodity/emerging market sectors which have lagged so dramatically. 

Finally, something suitably longer-term: Demographics - Germany is rapidly going grey. According to UN data, one in six Germans will be over the age of 80 by 2050 - and immigration won't do enough to turn back the tide. The country's ageing population is threatening its position as Europe's largest economy. (FT)  Meanwhile in Japan S&P notes country needs 'More Radical' Plan To Escape Demographic Trap

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