Sign of better times ahead

Thoughts of the Day

On Friday, the Chinese government announced measures totaling US$42 billion to support the struggling property sector. While not a large sum in the context of the Chinese economy, it signals the government’s readiness to help the real estate market. Recent government measures to boost the economy have positively impacted stock markets, with Hong Kong’s Hang Seng Index rising over 30% and the China A50 Index increasing by more than 20% from their lowest levels this year. These actions demonstrate the government’s strong commitment to keep things heading in the right path.

This is an abridged version of our CIO’s daily writeup for the day, to view the full version, please login or subscribe to a membership plan.

Tradertainment

What NOT to order at Brunch

“While we’re on brunch, how about hollandaise sauce? Not for me. Bacteria love hollandaise. And hollandaise, that delicate emulsion of egg yolks and clarified butter, must be held at a temperature not too hot nor too cold, lest it break when spooned over your poached eggs.
Unfortunately, this lukewarm holding temperature is also the favourite environment for bacteria to copulate and reproduce in. Nobody I know has ever made hollandaise to order. Most likely, the stuff on your eggs was made hours ago and held on station. Equally disturbing is the likelihood that the butter used in the hollandaise is melted table butter, heated, clarified, and strained to get out all the breadcrumbs and cigarette butts. Butter is expensive, you know. Hollandaise is a veritable petri-dish of biohazards.”

― Anthony Bourdain, Kitchen Confidential: Adventures in the Culinary Underbelly

Week Ahead

Monday: –

Tuesday

  1. RBA Meeting Minutes 
  2. Canadian Inflation Rate (headline: +2.8% YoY expected and +2.9% prev, +0.5% MoM expected and +0.6% prev)

Wednesday

  1. RBNZ policy decision (interest rates kept at 5.5% expected)
  2. UK Inflation (headline: +2.1% YoY expected and +3.2% prev; core: +3.7% YoY expected vs +4.2% prev)
  3. FOMC Minutes

Thursday: –

Friday

  1. Japan Inflation (core: +2.2% YoY expected vs +2.6% prev)
  2. US University of Michigan Consumer Data (Consumer sentiment: 67.4 expected vs 77.2 previous, 1 Year Inflation Expectations: +3.5% expected vs +3.2% prev, 5 Year Inflation Expectations: +3.1% vs +3% prev)
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What Happened Yesterday

Market Movements as of New York Close 17 May 24 (19 May for Crypto)
  • Euro Area Inflation (headline: +2.4% YoY as expected and prev, +0.6% MoM as expected and +0.8% prev; core: +2.7% YoY as expected vs +2.9% prev). Reaction in the EURUSD was muted.
  • The US stock market opened almost unchanged from Thursday. It then traded within a narrow range once again, moving sideways through the entire session. The S&P 500 finished +0.12% higher on the day (high: +0.16%, low: -0.26%), the Dow Jones climbed +0.34% (high: +0.35%, low: -0.03%) while the Nasdaq edged -0.06% lower (high: +0.17%, low: -0.52%).
  • Gold rose +1.59% and broke to new all-time highs while silver gained +6.46% and closed at the highest levels since 2013. Precious metals continue to power higher as the market starts to anticipate the start of the US Federal Reserve’s interest rate cut cycle. 
  • The crypto market traded higher following reports that the Chicago Mercantile Exchange (CME) might soon offer spot bitcoin trading (amid strong interest from clients). Bitcoin was up +1.61% while Ether jumped +6.46%.
This is a partial analysis of what happened yesterday, for a more detailed analysis, subscribe to a membership plan.

Headlines & Market Impact

China pledges $42 billion in a slew of measures to support the struggling property sector

Notable Snippet: Chinese authorities on Friday pledged new support for state-owned enterprises to enable them to buy unsold apartments, in an effort that could help developers get more funding to finish construction on pre-sold properties.

People’s Bank of China Deputy Governor Tao Ling told reporters at a briefing Friday the central bank would provide 300 billion yuan ($42.25 billion) to financial institutions to lend to local state-owned enterprises (SOEs) so they can buy unsold apartments that have already been built.

The central bank expects the support to release 500 billion yuan in financing for such purchases, which the SOEs could turn into affordable housing.

The real estate companies can then use funds earned from those sales to complete construction on other apartments, the central bank said.

As for unfinished, pre-sold properties, the National Financial Regulatory Administration Deputy Director Xiao Yuanqi told reporters that commercial banks have provided 935 billion yuan in loans to finish construction on whitelisted projects since the program was released in January.

“The government’s purchase of housing inventory can inject more liquidity to developers, who could then have more resources for housing delivery,” Larry Hu, chief China economist at Macquarie, told CNBC. “Finally the government stepped in as the buyer of the last resort.”

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Soaring debt and deficits causing worry about threats to the economy and markets

Notable Snippet: Government debt that has swelled nearly 50% since the early days of the Covid pandemic is generating elevated levels of worry both on Wall Street and in Washington.

The federal IOU is now at $34.5 trillion, or about $11 trillion higher than where it stood in March 2020. As a portion of the total U.S. economy, it is now more than 120%.

Concern over such eye-popping numbers had been largely confined to partisan rancour on Capitol Hill as well as from watchdogs like the Committee for a Responsible Federal Budget. However, in recent days the chatter has spilled over into government and finance heavyweights, and even has one prominent Wall Street firm wondering if costs associated with the debt pose a significant risk to the stock market rally.

While he has assiduously avoided commenting on such matters, Powell encouraged the audience to read the recent Congressional Budget Office reports on the nation’s fiscal condition.

“Everyone should be reading the things that they’re publishing about the U.S. budget deficit and should be very concerned that this is something that elected people need to get their arms around sooner rather than later,” he said.

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China is a ‘critical’ global supplier, full decoupling may be impossible, survey shows

Notable Snippet: China remains a “critical supplier” to the world and efforts for a full decoupling remain “difficult, if not impossible,” a trade report by Allianz Trade said.

Despite talk of decoupling and de-risking from China, European companies remain bullish about prospects in the country — with nearly 40% of companies in Germany and Spain and more than 30% of firms in France expecting their supply chain footprint in the country to increase.

That’s according to the report which showed that only 27% of companies surveyed in the U.S. were planning to expand in China.

“European companies are clearly less worried than U.S. firms,” the report, led by Allianz Trade’s Head of Economic Research Ana Boata said.

The Allianz Trade survey polled more than 3,000 companies in China, France, Germany, Italy, Poland, Spain, the UK and the U.S. were surveyed about their outlook for global trade in 2024. 

More than one-third of respondents plan to increase their China footprint, while only 11% said they would decrease it, the trade survey showed. 

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord