In today’s briefing:
- China: Economy off to Weak Start in 2022; Brace for More Tech Crackdowns
- Long-Short Trades: Oil Versus Stocks
- Singapore: Broader Macro Shifts Compel Fundamental Policy Changes
- Russia-China/ US-China/ Olympic Tech/ Holidays/ Emissions
- Latest Taper Tantrum Primarily Hits Equity Valuations as Bank Lending Remains Supportive for Growth
China: Economy off to Weak Start in 2022; Brace for More Tech Crackdowns
- The latest PMI data show clearly that a broad-based deceleration is underway in the Chinese economy, one that requires substantial policy support.
- While policymakers are showing more urgency to provide support for the economy, these efforts are localised and highly selective.
- Moreover, the continued push for regulatory crackdowns in an inchoate manner will unnerve private sector investors and potentially negate other policy efforts.
Long-Short Trades: Oil Versus Stocks
- As equity indices take a wobble again the Oil price has remained strong after posting both bullish weekly monthly close to new trend highs
- The relationship between Oil & stocks is in question because it is unclear whether a higher Oil price in an already inflationary environment is seen as “good” or “bad”
- Even in the case that the S&P 500 holds up and becomes correlated properly to Oil, the charts below suggest it will still underperform
Singapore: Broader Macro Shifts Compel Fundamental Policy Changes
- Inflation risks have risen as the stronger than expected economic rebound is closing the output gap quickly and thus price pressures are becoming more broad-based.
- The central bank’s surprise move to tighten monetary policy further last week is likely to be followed by more tightening, in monetary policy in October and in macro-prudential measures.
- We also expect non-monetary moves to cool inflation. A more aggressive easing of border restrictions to allow migrant workers in would improve labour supply and cool wage growth.
Russia-China/ US-China/ Olympic Tech/ Holidays/ Emissions
- China doesn’t just want to be part of the global order; it wants to shape it. These Olympics and future business will be conducted on Beijing’s terms.
- Winter Olympics highlight US-China cold war, growing tensions are deepening the rift between the two rivals’ financial systems.
- Olympic visitors will be wowed by China’s tech – and nervous of its use to monitor their lives.
Latest Taper Tantrum Primarily Hits Equity Valuations as Bank Lending Remains Supportive for Growth
- Elevated inflation makes it impossible for the Fed to ease to alleviate turbulence in the equity market. Equity valuations have borne the brunt of the latest taper tantrum.
- Current economic conditions are similar to 1984 when the Fed commenced a short tightening cycle by initially raising the federal funds rate by 50 basis points .
- The flattening yield curve raises concerns about potential inversion that has presaged recessions. Access to credit in the banking system has not tightened, despite fears of higher future funding costs.
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