Thread by @Trinhnomics

Good morning 🌞Asia:

a) Data overnight was underwhelming (🏘 starts 📉permits📉price 📉consumer confidence📉(exps bad);
b) Markets priced in 25bps cut for Fed
c) US exceptionalism fading, dragged down by weak growth in Europe, Asia & EM.

Q: Wut happens next to equity prices?🧐

Let's 🧐 at correlation of SPX & consumer confidence (sentiment indicator but key b/c sentiment matters in consumption b/c even animals 🐿 plan for the winter for survival as seasons change🌨):

Wut do u see in this chart? They are bffs 👯‍♀️ & move together 😍& Confidence is 📉😬

Some people say soft indicators don't matter as much as hard but our expectations of the future that drive our current decision making so expectations should drive whether we go on a shopping spree or start squirreling away for the winter.

FYI, RBNZ 🇳🇿just signaled room for ✂

China industrial profits contracted📉 -14% YoY (ytd Jan + Feb so should strip out seasonality & u knew that b/c of 0.1% PPI):

Manufacturing sector DECLINED📉 -15.7% YoY & details are pretty ugly.

Guess wut happens when manu is bad? They reduce costs & so consumption infected🤢

The circle of the economic relationship b/n China & the US🇨🇳🇺🇸:

a) Contraction Chinese industrial profits spills over to consumers via 📉income 📉consumption;
b) 🇺🇸 firms that sell goods to Chinese consumers (Apple & Caterpillar) 📉
c) US consumers' sentiment📉
d) US eco slows

Explained that here👇🏻:

@Trinhnomics , Senior Economist, @natixis says Asian central banks are setting the stage for rate cuts ahead & also discusses what investors should be aware of ahead of upcoming elections in various Asian nations.

📉econ data =✂

bloomberg.com/news/audio/201…

@natixis Question: Where are we in terms of China industrial profit?

Answer: We are here 👇🏻, as in back to 2009 level & hasn't been that bad since 🤢

Q: (-14% drop of profits)🧐:

a) How are they going to service their debt give that firm-level debt is >160% of GDP;
b) Wut firms'll do (likely to cut costs & that means employment✂);
c) Impact on rest of eco;
d) Impact on banks's balance sheet
d) What the PBOC&MOF will do? 🇨🇳🤔

Let's make it concrete:

Say China firm debt/GDP ratio is 163, meaning if u think of it as 1 firm then income is 100 then debt is 163.

In 2019, income dropped -14%, income = 86, meanwhile debt is multiplied at roughly 5%;

In 2019, debt at 171 vs 86 income.

So wut to do?🤔

A question🙋🏻‍♀️:

Has anyone looked into the ability of this China Beige Book company to forecast the economy? Says, "recovery extends across both sectors & geographies." And also notes that borrowing costs higher (this I believe).

So wut about 📉of trade, profits, IP, PMIs, M2🙄

Wut I mean to say is that this China Beige Book's supposedly better than the Chinese gov' data on all fronts? Also better than trade data of other countries on China trade activities (Japan machine orders & Korea China trade exports) & also firms' earnings results + Markit PMIs🙄

The Baltic Dry Index is le dry 🏜:

Look at the big drop since 2018. Worst is 10 Feb 2016 & that was the year of massive global trade contraction.

The decline of manufacturing 📉is not inconsequential b/c a bunch of sectors service manufacturing (e.g. Singapore service industry)

Baltic le dry index 🏜 vs SPX - some catching up to do.

Question: Is Baltic le dry index catching to SPX or the other way around? 😬🤔

Actually, it's WORSE. If you use the level provided by NBS then industrial profit contracted by:

-27% YoY

I basically just took a %YoY, which begs the question, where is the -14% coming from?

It comes from "quality control" of the data. True story 👌🏻😉