Chinese Data Dump Confirms Hard Landing Imminent
Update (2210): On the heels of data showing land sales collapsing, tonight's smorgasbord of data (absent only GDP) on consumption, industrial output and investment will reveal the extent of the damage caused by an outbreak of the delta variant.
As a reminder ahead of tonight's August data, the latest official composite purchasing manager’s index fell to the lowest since February 2020, its first contraction after the virus lockdowns, signaling China’s robust economic recovery from last year’s coronavirus trough is losing momentum.
Industrial Production YTD YoY MISSED at +13.1% vs +13.5% exp DOWN from +14.4% prior
Retail Sales YTD YoY MISSED at +18.1% vs +18.9% exp DOWN from +20.7% prior
Fixed Asset Investment YTD YoY MISSED at +8.9% vs +9.0% exp DOWN from +10.3% prior
Property Investment YTD YoY MISSED at +10.9% vs +11.3% DOWN from +12.7% prior
Surveyed Jobless Rate IN LINE at 5.1% vs 5.1% exp IN LINE with 5.1% prior
Perhaps most notably, year-over-year retail sales rose just 2.5% in August, dramatically worse than the +7% expected and well below the +8.5% in July...
Retail weakness was most pronounced in communication appliances, clothing, household electronics, automobiles and eating out; and as Bloomberg's Kevin Kingsbury notes, retail sales data are liable to be worse for September (and possibly October) as folks are apt to stay home during the upcoming holidays.
Notably, the PBOC rolled over 600 billion yuan of funding in a move that signals Beijing is keeping liquidity levels amid the slowdown. The question is, with China's credit impulse is at its most contractionary in 3 years, is this the turning point once again?
Policy makers have so far refrained from large-scale stimulus this year, instead resorting to some low-profile tools to increase credit supply to parts of the economy, especially small businesses. It will be hard for Xi to back down from his ivory tower to suddenly flip-flop to support the economy - systemically or idiosyncratically - without appearing to kowtow to the elites at at time when he is clearly focused on avoiding social unrest among the non-elites.
* * *
As we detailed earlier, one month after we warned that China had just unleashed a stagflation shockwave, as inflation - and especially factory price inflation - hit the highest in 13 years, crushing corporate profits, while GDP disappointed, and weeks after we also pointed out that China's credit growth in August had collapsed to the lowest level since the peak of the covid crisis in Feb 2020, Bloomberg writes in its economic preview of China's economic data dump scheduled for tonight that the country's economy "likely slowed further in August, with data on consumption, industrial output and investment due Wednesday to reveal the extent of the damage caused by an outbreak of the delta variant."
The extent of the slowdown will be closely watched for sign that it’s serious enough to prompt authorities to change their current stance of slowly withdrawing liquidity from markets and keeping stimulus limited. The ongoing regulatory crackdown on sectors like education, the internet and property may have exacerbated the recent economic weakness.
And while Bloomberg expects substantial disappointments across the board for the month of August when China was hit hard by another round of covid restrictions, including disappointing consumption, property, infrastructure and unemployment data, the reality is that China may be this close to a hard landing.
The reason for that is that while it won't be featured in tonight's data lineup, high-frequency data - actual data, not that kind "filtered" by Beijing's National Statistics Bureau - points to an absolute disaster for China’s property sector, which has imploded over the past two weeks (coinciding roughly with the terminal collapse of Evergrande).
According to Nomura, year-over-year growth in volume terms of new home sales, existing home sales and land sales dropped further to -26.6%, -46.6% and -38.3% in the first 11 or 12 days of September from -22.5%, -39.5% and -21.9% in August, respectively. It gets worse: land sales in value terms plunged to -90.4% y-o-y for 1-12 September from -65.0% in August. Some more details from Nomura:
New home sales growth data for WIND’s 30-city sample serves as a good tracker of official NBS new home sales growth, thanks to their high correlation coefficient of 0.92 during the period from January 2018 to July 2021. Based on our estimates, year-on-year growth in new home sales (hereinafter in volume terms for new home sales) for the WIND 30-city sample declined further to -26.6% for 1-11 September from -22.5% in August and -4.4% in July (Figure 1), while its annualized 2y-o-2y growth also fell to -10.3% in month-to-date September from -5.2% in August and 3.4% in July (Figure 2).
It gets even worse, because a breakdown of the data shows that low-tier cities fared much worse: developers’ net bond financing fell into deeper negative territory in August in both onshore and offshore markets, pointing to a further tightening in developer financing conditions.
According to WIND, growth in land sales in value terms in the 100-city sample, a proxy for land purchases by property developers, slumped to -90.4% y-o-y during 1-12 September form -65.0% in August. In volume (floor space) terms, it also dropped sharply to -38.3% y-o-y from -21.9% (Figure 6).
Although high-frequency land sales data may be under-reported to some extent, as WIND may not receive all cities’ data in a timely manner; the downtrend in land sales growth is quite evident.
These data support the cautious view of Nomura's Ting Lu of China’s property sector and macro economy. As Lu writes, "we believe the ongoing property curbs are unlikely to be eased in the near term, as Beijing has attached national strategic importance to reining in property bubbles, directly intervening in credit supply for the property sector, leaving it little room to dial back these curbs."
The likelihood of Beijing easing its property curbs is quite low. Actually, despite the worsening property sector, a number of cities have further tightened their curbs over the past two weeks.
This brings us to another observation made by Nomura last month in the bank's must read report "Asia Special Report - China: Beijing’s Volcker moment" (available for pro ZH subs at the usual place) namely that the country is facing its "Volcker moment", as Beijing seems to be willing to sacrifice some growth stability for achieving long-term targets, namely
- less dependence on foreign high-tech goods,
- achieving a higher birth rate and
- reducing wealth inequality.
Here, Lu repeats his dire conclusion, warning that "there is likely to be a much worse-than-expected growth slowdown, more loan and bond defaults, and potential stock market turmoil."
It’s also clear that so far low-tier cities have borne the brunt of the ongoing property sector downturn, due to Beijing’s unprecedented tightening measures, the tapering of the PBoC’s pledged supplementary lending and continued population outflows towards large cities.
Finally, the latest covid breakout (in the nation that created covid) isn't helping. As we reported earlier, over the weekend, Putian city in East China’s Fujian province reported 64 local positive cases and the city already imposed locality-based lockdown and "discouraged" people from leaving the city - translation: another multi-million city is under massive quarantine. Of course, it has failed and the outbreak has already spread to neighboring cities in Fujian province, including Xiamen and Quanzhou, with several districts and hospitals put under lockdown there. The situation will get worse as some analysis estimate around 30,000 people have already traveled out from Putian.
Bottom line: Beijing is facing an economy whose wheels have suddenly come off, and unless China's political elite is willing to unleash another massive monetary and fiscal tsunami and bail out the economy all over again - something Beijing has repeatedly vowed it won't do this time - a hard landing, whether or not accompanied by a Volcker Moment, is virtually guaranteed.
TSX gains on Trudeau’s re-election, loonie up
Canada s broader TSX Index on Tuesday September 21 lifted post the re-election of Prime Minister Justin Trudeau as investors see it as largely a continuation…
Canada’s broader TSX Index on Tuesday, September 21, lifted post the re-election of Prime Minister Justin Trudeau as investors see it as largely a continuation of the present economy although few jitters might be witnessed due to the bankruptcy of Chinese property developer, Evergrande. Thus, the TSX Composite Index closed with a gain of 89.75 points or 0.45% to settle at 20,244.29.
The one-year price chart (as on September 21).
Canadian Natural Resources was the most actively traded stock where 16.46 million exchanged hands, followed Cenovus Energy Inc. where 10.30 million exchanged hands, and the National Bank of Canada with 6.31 million shares exchanging hands.
Movers and laggards
Wall Street update
Wall Street was turbulent as traders awaited the Federal Reserve's monetary policy statement on Wednesday. Following the sell-off observed during trading on Monday, stocks exhibited a lack of direction throughout Tuesday's trading session.
The Dow Jones Industrial Average was down 50.63 points or 0.2% to 33,919.84, while the S&P 500 fell 3.54 points or 0.1% to 4,354.19, while the Nasdaq climbed 32.50 points or 0.2% to 14,746.40.
As Evergrande concerns continued, gold climbed 0.82% to $1,778.20. Brent oil rose 0.60% to US$ 74.36/bbl as the aftermath of the US hurricane Ida squeezed supplies, while Crude oil rose 0.38% to US$ 70.56/bbl.
The loonie stood higher against the U.S. dollar on Tuesday, while USD/CAD closed at 1.2815, a slide of 0.08%.
The U.S. Dollar Index was down against the basket of major currencies on September 21, and ended in the red at 93.22, falling 0.06%.
The U.S. 10-year bond yield traded higher on September 21, and ended in the green at 1.328, up 1.17%.
The Canada 10-year bond yield also gained on Tuesday’s trade and closed at 1.229, up 0.49%.dollar gold commodity monetary reserve policy monetary policy
The Market is Deeply Oversold And Looking For A “Dovish” Fed
As we will discuss, the market is deeply oversold and looking for a "dovish" Fed to spark buying. Traders and investors will be laser-focused on the Fed…
As we will discuss, the market is deeply oversold and looking for a “dovish” Fed to spark buying. Traders and investors will be laser-focused on the Fed meeting adjourning at 2 pm ET. Of importance, the decision on taper and their characterization of the economic recovery and inflation. If they do elect to announce a taper schedule, the pace of tapering and any caveats that may delay tapering will be of utmost importance.
Like yesterday markets are opening up a half to one percent higher. Will they hold onto the gains, unlike yesterday? The answer likely lies with the Fed at 2 pm.
What To Watch Today
- 7:00 a.m. ET: MBA Mortgage Applications, week ended September 17 (0.3% during prior week)
- 10:00 a.m. ET: Existing home sales, month-over-month, August (-1.7% expected, 2.0% in July)
- 2:00 p.m. ET: FOMC policy decision
- 7:00 a.m. ET: General Mills (GIS) is expected to report adjusted earnings of 89 cents per share on revenue of $4.30 billion
- 4:10 p.m. ET: KB Home (KBH) is expected to report adjusted earnings of $1.62 per share on revenue of $1.57 billion
- 5:05 p.m. ET: BlackBerry (BB) is expected to report adjusted losses of 7 cents per share on revenue of $166.80 million
- President Biden is back in Washington this morning after his speech to the UN General Assembly. He’s still involved remotely in the proceedings and is hosting a virtual COVID-19 Summit with other world leaders today.
- The Centers for Disease Control and Prevention has meetings today and tomorrow to discuss the need for COVID booster shots. Last week, a Food and Drug Administration (FDA) advisory committee recommended boosters for Americans at high risk of falling seriously ill from the coronavirus.
- The Senate may consider a plan to avoid a government shutdown and to raise the debt ceiling. It passed the House of Representatives last night on a party-line vote with Republicans vowing to block it when it reaches the Senate.
Market Deeply Oversold – Looking For Some “Dovish” Tones
The rolling correction over the last 3-weeks has pushed the market into deeply oversold conditions on a short-term basis. Such provides plenty of “fuel” for a decent rally over the next month or two given some news to spark buying. Today, the Fed could do the trick with Jerome Powell delivering his post-FOMC press conference with a “dovish” tone. With Congress battling over the debt ceiling, the Treasury running out of money, and the risk of a Government “Shutdown” looming, the Fed has all it needs to provide plenty of “caveats” to its “taper” plans.
Fear Greed Index Near Lows
Another reason for near-term bullish optimism, is that both the AAII bullish allocation and the “Fear/Greed” index are near their respective lows. Combined with the oversold market conditions, such typically provides a buying catalyst as traders reposition themselves in equity risk.
Trading Game Plan for the S&P 500
The markets are trading well in overnight trading following yesterday’s flat-trading day. The bounce provides us with another set of levels, in addition to the 50, 100, and 200-dmas, to guide our trading. The graph below shows the Fibonacci retracements from the recent high to low. If this rally proves to be a bull trap, it is likely to give up between the 38% retracement (4395) and the 62% retracement (4451). There is also a gap between 4400 and 4430.
It is common for such gaps to fill and then reverse direction. If the market surges higher through the gap and retracement levels, the outlook becomes more bullish. A rally above the 4451 retracement level and well through the 50dma (4436) will likely lead to new highs. Conversely, the 50 dma (4436) may prove to be resistance. The first line of support is yesterday’s lows and the 100dma (4328). A break of the recent low leaves a target of 4106, the 200dma.
Easy Lending Standards
Employment and inflation tend to get the headlines as far as rationales for the Fed to take action. As we consider what the Fed may do tomorrow, we should also consider lending standards. The graph below shows the lending standards for large banks’ credit card customers are as easy as they have been in 20 years. On its own, very easy lending standards, as we have, push the Fed toward a more hawkish stance. Easy borrowing conditions incentivize personal consumption. More consumer activity, especially given current supply line problems, is likely to further agitate inflationary conditions.
Chinas & Evergrande. Will They or Won’t They?
In addition to concerns with China, Evergrande, and possible contagion, the markets are also grappling with Wednesday’s Fed meeting. In what was likely a purposeful leak last week, the WSJ laid the groundwork for a taper announcement Wednesday and the reduction in asset purchases in November. With the U.S. and foreign markets skidding yesterday some are asking how the Fed might react. In a Bloomberg interview, ex-New York Fed President, Bill Dudley, warns “They’re not going to react to small market moves and defer the tapering on that basis. They have to change their economic forecast,” he said Monday during an interview on Bloomberg Television with Lisa Abramowicz, Tom Keene and Jonathan Ferro. “At this point, it’s really premature to reach that conclusion.”
The post The Market is Deeply Oversold And Looking For A “Dovish” Fed appeared first on RIA.inflation markets policy fed inflationary
Looking for the Next Big Crypto to Explode in 2021? Try These 5 Coins
Bitcoin (CCC:BTC-USD) launched on January 3, 2009. The oldest and largest cryptocurrency, prices of this coin have swung wildly since its inception. But…
Bitcoin (CCC:BTC-USD) launched on January 3, 2009. The oldest and largest cryptocurrency, prices of this coin have swung wildly since its inception. But last year, Bitcoin experienced explosive institutional and retail interest in the space alongside the broader crypto world. Now thousands of altcoin investors are betting that they can pick the next crypto to explode.
Even though Bitcoin recently underwent a correction, trading volume remains strong between $42,000 and $50,000. Of course, that is very expensive, considering the median household income is $62,843 right now. Yes, you can invest in Bitcoin through PayPal (NASDAQ:PYPL) and Square (NYSE:SQ). But the crypto is still expensive when you compare it to several altcoins out there.
Plus, there are over 7,000 cryptocurrencies you can choose from for your portfolio. When it comes to making big gain, it’s easier for a coin to gain 100x if you’re starting from a smaller size, rather than chasing after a rocket that’s already taken off.
Here are 5 coins that could be the next big crypto to explode:
- Ethereum (CCC:ETH-USD)
- Binance Coin (CCC:BNB-USD)
- Tether (CCC:USDT-USD)
- Monero (CCC:XMR-USD)
- Algorand (CCC:ALGO-USD)
When investing in any crypto, remember to check if there is an inherent utility to the coin. Even cryptos meme coins need developers to crank out regular updates to stay relevant.
The Next Big Crypto to Explode: Ethereum (ETH-USD)Source: shutterstock
Ethereum is a decentralized, blockchain-based software platform, and its cryptocurrency is called Ether or Ethereum. Ether is the world’s second-largest cryptocurrency and has held this position for a long time now. Recently, Ethereum has been in the news for its hard fork “London upgrade,” a major revamp for the platform. The hard fork comprises five Ethereum Improvement Proposals (EIPs). The upgrades are important, but the most notable is EIP 1559, which reduced Ether supply with every transaction.
In addition, the upgrade will lead to the Ethereum network handling more transactions per second, improving scalability, and bringing down transaction fees. Another major benefit is expected to decrease the total number of ether coins in circulation, making it a deflationary cryptocurrency. In the run-up to the upgrade, Ethereum did very well. However, considering the next upgrade will occur at the end of 2021, there is an upside here that you can exploit.
Binance Coin (BNB-USD)Source: Shutterstock
Binance is one of the most successful crypto exchanges globally when ranked by trading volumes, which is why BNB, its native cryptocurrency, is soaring.
Much like Bitcoin, the thing to like about Binance Coin is the hard limit on the total number of tokens in circulation. It has a strict maximum limit of 200 million BNB tokens. As a result, the token price has risen exponentially for the year thus far.
Binance uses around one-fifth of its profits every quarter to eliminate or “burn” BNB tokens. The reason for destroying or “burning,” coins makes sense: it increases the worth of the remaining tokens.
One of the biggest reasons to be optimistic about Binance Coin is its many use cases. Initially, it was developed as a utility token for discounted trading fees in 2017. But now, you can use it to make travel payments, financial services, and entertainment, among others.
The driving force behind any token is its usability and that’s why BNB will be the next crypto to explode.
Tether (USDT-USD)Source: DIAMOND VISUALS / Shutterstock.com
Stablecoins are a new breed of crypto gaining prominence. They are a less volatile alternative to Bitcoin because they are linked to an asset like the U.S. dollar, as is the case with Tether. The cryptocurrency allows you to transact in traditional currencies and avoid the complexities of digital currencies.
Tether is designed to bridge fiat currencies and cryptocurrencies, allowing users to transfer other cryptocurrencies back to U.S. dollars in a less complex, faster manner. Tether has a 1-to-1 ratio with the U.S. dollar for valuation.
Consequently, the altcoin is less speculative than popular cryptocurrencies like Bitcoin and Ethereum. For crypto investors who want to avoid the wild swings that are part and parcel of this space, Tether should be right up your alley as the next crypto to explode.
Monero (XMR)Source: Wit Olszewski / Shutterstock.com
Monero is very popular these days because it has the ability to anonymize users. Ring signatures and stealth addresses help in accomplishing this task. Due to the technology at its disposal, the privacy-focused Monero cab hides the identities of the sender and the receiver.
The only problem some might have with Monero’s approach is that privacy isn’t really an option. It enforces anonymity at a fundamental level. That may rub certain people the wrong way.
But there are several people out there who love this feature and want to protect their identity online since this was one of the main initial benefits of blockchain technology — to remain completely anonymous.
Algorand (ALGO-USD)Source: shutterstock.com/Shizume
Algorand investors have enjoyed blockbuster returns following an announcement that El Salvador would establish blockchain infrastructure using Algorand.
Italian computer scientist Silvio Micali is the man behind the platform. ALGO-USD has positioned itself as a competitor to Ethereum. One of the biggest things going for it is the proof-of-stake proofing algorithm, which is less energy-intensive to run. One of the main criticisms against Bitcoin is that it consumers a lot of energy. Through using a proof-of-stake mechanism, ALGO-USD sets itself apart from the rest of the altcoins out there.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.
More From InvestorPlace
Stock Prodigy Who Found NIO at $2… Says Buy THIS Now
Analyst Who Found Microsoft at $0.38 Names #1 Pick for the AI Boom
America’s #1 EV Stock Still Flying Under the Radar
The post Looking for the Next Big Crypto to Explode in 2021? Try These 5 Coins appeared first on InvestorPlace.dollar deflationary nyse nasdaq diamond
Today Will Be A “Notable Test” For BTFD’ers: Here Are The Levels To Watch
Will China Bail Out Evergrande?
BTC, ETH, ADA, BNB: Why Is Crypto Crashing Today?
Legendary Investor Jim Rogers Warns The “Worst Bear Market Of Our Lifetime” Is Approaching
“Ice Is Coming”: Morgan Stanley Warns Odds Of “Destructive” 20%+ Correction Are Rising
“Not Transitory” – US CEOs Warn Inflation Is “Unprecedented” And Becoming “Structural”
Can Evergrande’s great fall in China impact Canadian stock markets?
Volatility Spike Could Trigger Up To $40 Billion In Forced Selling
TSLA, NVDA, AAPL, NIO: Why Is the Stock Market Down Today?
Key Events This Extremely Busy Week: Central Bank Meetings Galore, Congress Chaos, Elections And More
Economics16 hours ago
Legendary Investor Jim Rogers Warns The “Worst Bear Market Of Our Lifetime” Is Approaching
Precious Metals23 hours ago
Gold Price Prediction: Will Fed’s Decision Trigger a Breakout?
Economics18 hours ago
FOMC To Provide “Advance Notice” For November Tapering; May Deliver Two Potential Hawkish Surprises
Energy & Critical Metals20 hours ago
Mining Stocks Hitting 52-Week Highs This Week
Today’s News22 hours ago
Vertical Exploration Stock Rises 14.81% on Encouraging Initial Sales and Marketing Update
Energy & Critical Metals21 hours ago
#UraniumSqueeze – Prices Continue to Soar as Investors Bet on Higher Demand by Depleting Supplies
Articles23 hours ago
Top Silver Stocks To Watch This Week
Base Metals22 hours ago
Nevada Copper Starts Trading On Post-Consolidation Basis