Linkage Friday: Another Bullish Voice on China, and Views of France's Labor Reform

Just thought I would dash off a few quick thoughts before we all throw in the towel for the weekend.

Macro: Wow...the horsewhipping of USD continues unabated, with some very big levels either getting taken out--1.20 in EUR, .81 in AUD, and CAD approaching 1.20. Not to be left out is the kiwi which is finally outperforming after getting kicked around for much of the metals-driven rally over the past three months. Looking at EUR crosses you see....nothing. This is more of the same--China demand, risk-on, reach for yield...welcome back, 2006.  We missed you.

If you are young enough that you weren't on a trading desk back then, well this is what it was like.

Interesting to note the strong bounce higher in yields after the gap overnight--I would guess more flow driven/profit taking at this point but no doubt the theme is intact. Stocks not quite the BTFD theme but notable there was absolutely zero follow through to the modest selloff earlier in the week.

I'm going to take the easy way out and post a few links to some insightful things I saw this week:

The WSJ had a great article on the "mystery", or "conundrum" if you go back to the Alan Greenspan days, of higher growth paired with stubbornly low inflation. I like how this one identifies what are really productivity gains--tech companies bringing new capital investment and business methods to staid industries that allow them to cut prices as they grow, rather than encouraging demand-push inflation.

This article, which was almost in response to the one above, goes into the Fed's thinking on the topic. I continue to be torn on if they will pull the trigger and hike in December--the easing of monetary conditions driven by the market moves above tilt me towards the "hike" camp but it won't take much more bad data or low inflation figures to give them an excuse to sit on their hands.

Getting back to the China issue, I'll again cite the folks over at BCA, who had this chart and commentary, which is supportive of the guys at China Beige Book that I mentioned earlier this week:

"China’s August macro data to be released in the coming weeks will likely surprise to the upside. Some market signals from global assets that are traditionally sensitive to Chinese growth trends have shown remarkable strength of late, likely signalling further upside in the Chinese business cycle. Metals prices have been firm across the board. Stock prices of metals producers in major producing countries have significantly outperformed their respective benchmarks, likely pointing to an imminent upturn in China's leading economic indicator. The Baltic Dry Index, the benchmark for bulk shipping rates that is largely driven by Chinese materials demand, has stayed elevated, probably a sign that China's bulk commodities intake has remained fairly robust. All of this still paints a bullish backdrop for global risk assets, despite the obvious geopolitical risk."


At this point, someone is going to have to tell me why this is going to stop...my facebook feed just popped up a "memory" from five years ago where a friend had posted an article called, "China's Mother of All Debt Bombs" and asked me my opinion. I said it would blow up sometime in the next 1 to 20 years. I'll chalk that up as the right call. 

Lastly a couple of links to The Two Pillars of French Labor Reform, and Macron's Labor Gambit at Project Syndicate. I think these, especially the second one, sum up the situation rightly--the reforms are big, in that they are being proposed in a political environment where they could actually pass...but they are small in that they are really incremental relative to how many other country's operate. They will only be successfully if they are the beginning of a reform movement, rather than Macron's political suicide. Only that will drive the resurrection of the "animal spirits" in France and drive profits and employment. 

As I mentioned earlier, I think that is worth taking a swing at French equities relative to other eur-based equity indices, although I must admit I am not knowledgeable enough on the components to know how the risks pair off. After all, I'm just a bond guy...I'll leave that to the equity pros...

   




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Skr
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September 8, 2017 at 7:48 PM ×

Thanks Shawn.

It is indeed Friday and I haven't done this for a while...

https://youtu.be/3rzgrP7VA_Q

Heading out for the night with Chad, brad and thad.

Enjoy the weekend lads.

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September 9, 2017 at 12:48 PM ×

I must say you had done a tremendous job,I appreciate all your efforts.Thanks alot for your writings......
Packers And Movers Chennai

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zh jin
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September 10, 2017 at 9:26 PM ×

The metal price actions on Friday might be a warning shot and it is time for reversal.

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September 11, 2017 at 7:20 AM ×

See telecom, microprocessors, digital technology, etc. Thise are some of our last great new tech (IMO) For the most part they enhanced current tools and technologies we have now as opposed to creating entire new industries or applications stand alone style. It took a few years, but you can see the price just plummet the last 10 years and yet their profitable. GOOD deflation.

I know people want to say hey man what about US debt? Literally no evidence backing up the deflation is a "killer for debtors claim." Only 1 asset class is a major risk...you guessed it real estate.

With a China...wow, who knows really. I see flat prices but major typical demand price inflation in several commodities. They took tons of the citizens savings deposits to recap banks and offers credit lines to ppl. Well they did spend the credit so that boosted some general consumer inflation in China also. Watch the WMP's that are collateralized by commodities as well.

They are getting more nasty with mercantilism every day. Reminds me of the 80's with Solomons Andy Krieger and Negara bank FX traders out taking currency scalps...so yeah HKMA is hiding a Chinese secret, but I'm just not 100% what they are hiding. Sorry for the novel

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Leftback
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September 12, 2017 at 9:50 PM ×

Went short TLT long UUP into the weekend of the apocalypse, duly rewarded for the TWINE trade. [The World Is Not Ending].
Now we are indeed back to the low volume, vol selling grind up with which we are all so familiar during op ex weeks.

Waiting for expiration to initiate another cycle of short IWM short SVXY… Groundhog Day.

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September 13, 2017 at 5:46 AM ×

Hey Leftback,

I'm waiting another research note from Texas Oil incorporated.

ps.....I know you never had it to begin with. Guesser.

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IPA
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September 13, 2017 at 6:39 PM ×

Oil Renaissance continues. XLE popping above the 100 day for the first time since Feb with XOP and OIH dancing between 50 and 100 now. Put stops below 47 on WTI and go to sleep for 3 months? UNG is looking to close above weekly mid-BB for only the third time in 2017. Can someone please push Nat Gas above 3.10 already?

@LB, tax cut talk is what was expected to keep the equities up. Once it is a foregone conclusion watch out below. Not a derailing end of the world scenario, but a deeper correction, imho. For once, I care not being a fly on the wall at the WH for a bipartisan dinner. We wrote the scenario here, what else is new? Was Trump forced to move to the middle? He wanted to be in the middle all along.

@amps, what are you drinking tonight?

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IPA
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September 13, 2017 at 6:51 PM ×

I should add, SVXY head and shoulders looks sweet. Measured pants-crapping move to 47?

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