Investors are optimistic that Beijing will find measures to address growing financial and real estate risks. We see slightly improved risk sentiment on a quiet day (in terms of the economic calendar), even after Asian equities – particularly in China and Hong Kong – extended their losses on Monday. While it is true that the contagion risk of the property crisis is limited beyond China, a failing property market in China is immensely damaging to the country's financial stability and will lead to a further decline in foreign investment and curtailment of Beijing's stimulus measures to deal with slow economic recovery and falling consumer spending. Sharply falling property prices in China – or even a bursting of the bubble – would have STRONG implications for global markets.
The market remains overly optimistic and there is little positive news to restore confidence in the Chinese real estate market – which in reality remains overvalued and is likely to fail. More and more real estate developers in China are heavily indebted and must find ways to raise money, whether through bond issues or support from Beijing. Country Garden Holdings, once China's largest property developer, has plunged more than 18% in Hong Kong trading.
Investors are also still optimistic that the end of central bank tightening will lead to improved macroeconomic conditions. While this is generally true, we see many risks to a slowdown in the global economy that would help bring inflation down, but also with the help of a sharp drop in consumer demand. After the strong rally in the first half of the year, we still see room for further corrections, mainly because some economies are showing or continue to show serious tensions.
This week also focuses on more CPI data from Europe and Japan, more economic data mainly from Europe, and the minutes of the latest Fed meeting – which is unlikely to reveal anything new, but shows that the Fed remains data-oriented before making a final decision on stopping rate hikes.
The USD remains in demand as the U.S. economy continues to outperform and can withstand high interest rates better than most other economies. We also see increasing stress in emerging markets and concerns about low growth in Europe and Asia, which will support the USD due to increased safe haven demand.
U.S. Treasury yields remain high and are more likely to point to another rise at the start of the week, which would further support the USD, weigh on the growth sector and commodities, and also push gold to the key $1,900 level.
We do not follow the market's optimism and expect the gains to be met with profit taking. Overall, we will see mostly a sideways movement with reduced trading volume today.
👁 ROB'S MARKET OVERVIEW:
August 14, 2023
🇺🇸 US Markets ➡️
Cyclical Stocks ➡️/↘️
Tech/Growth Stocks ➡️/↘️
Financial Stocks ➡️/↘️
Defensive Stocks ➡️/↗️
Energy Stocks ↘️/➡️/↗️ (under pressure in early trading but finding some support as growth stocks continue to be sold)
Materials Stocks ➡️/↘️
💱 Forex
USD ↗️ (remains in demand / benefiting from hot CPI data higher Treasury yields)
CAD ➡️
EUR, GBP, AUD ➡️/↘️
CHF, JPY ➡️/↘️ (USD remains safe haven of choice – high yield spreads between Fed and SNB & BoJ)
⚒ Commodity Markets ↕️
Oil prices ↘️/↕️ (Oil prices see headwinds from weak China but will stabilize on tight supply)
Natural Gas prices ➡️
Metal prices ➡️/↘️
Precious Metal prices ➡️/↘️ (remains under pressure due to elevated Treasury yields)
⚡️Cryptos ➡️/↘️ (risk-off, stronger USD and higher yields weigh on cryptos)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
Yours, Robert
