Iron ore down another 5%
Aussie stocks down >2%, with materials leading the move down (-3.7%, given the china link there)
3/ The Chinese currency is down a touch, but less than 0.2%. How is this possible? It often happens for 'reserve currencies' and China badly wants to create one. It fits a pattern that was also in motion in early 2020 (CNY outperforming AUD and other Asian currencies).
(the FX issue will have to be a thread on its own soon, as it is interesting, and often misunderstood)
4/ global yields are shifting down, and they are supposed to on risk aversion. But it is an open question if Chinese yields will follow. There is not the same link between asset price weakness and policy support (mon pol easing) in China as in the US and G10.
5/ More generally, market participants will be watching for signs that policy makers are about to step in, to attempt to calm the situation. But the issue is that they want deleveraging in the real estate sector. So when to step in? Nothing new to observe on this front yet.
As I commented in a thread yesterday, the underlying structural issue is very BIG. Hence, we have to watch market moves carefully as the type of contagion we observe evolves; and what the policy responses, if any, are.
Today, I will show some background data on the structural problem in Chinese real estate, and offer some basic perspectives on how the situation differs from the US in 2008 (not better or worse, but simple different)
The memory from the US in 2007-2008 is still fresh. The US housing market was too hot. There was too much leverage / building. And we ended up with a big crisis => the losses had to be allocated (globally), and policy makers were not willing to (or politically able) fill the gaps
There is a huge amount of focus on China contagion/Evergrande at the moment. Hence, it is a time to be precise. I will not do a comprehensive thread (yet). But just provide some specific color on the High Yield credit moves, which themselves are generating a lot of attention.
It is true that China (USD) credit indices moved a lot last week, after stabilizing briefly in early September.
And there are lots of fintwit comments on that: Here is a good (and sober) example:
It is worth thinking about what is going on under the surface, so I am going to plug in the first 10 names (highest weight in the index) and let them tell the story:
The first one is Bank of Communications (2.4%) weight in HY index. Yield is very stable. Not much contagion here.
Here is a thread about getting involved with NFTs...
It is not about whether NFTs are inherently valuable (it seems like an unresolved philosophical question). But simply about observing the process for the first time, and the FEES, which can be rather wild!
here we go...
It is hard to have an opinion about a new market / asset until you have actually been directly involved in some form...
...I bought my first Bitcoin many years ago, to experience the process. And I did the same with ETH too, quite a few years back. It was pretty simple, although the identification process involved a bit of a lag on some platforms at the time.
The perception of vaccine effectiveness has been influenced by Israel's experiences since early 2021.
There has been three faces already in 2021...
A) Hope, B) Doubts, C) Fresh Hope
A) In the first half of year, Israel's success in getting cases down to VERY low levels (combined with full reopening) created global optimism that 'normalization' was around the corner in many parts of the world.
B) But then we had a fresh spike in cases as delta emerged, and lots of coverage of break-through cases (=doubt about vaccine effectiveness)
Here is our 'prediction model' from today. It mean to pull information together from many many different instruments and map them into a simple signal for the S&P500 based on historical correlations
It is an information aggregator, not a prediction tool
Here is our FX summary. It is meant to give a clear, objective daily overview, in vol adjusted space, so you can get a feel for global action in 5 seconds (rather than spending 5 minutes on it)