The hunt for Reddit October

Reddit army boosts silver prices

Those pesky Reddit financial market vigilantes are proving to be more elusive than an ultra-quiet submarine lurking in the waters of Manhattan. As the US Depository Trust and Clearing Corporation (DTCC), the main clearinghouse for US equities, has hiked collateral requirements on brokers. The intention being to depth charge the brokers facilitating the summary justice being dispensed to Wall Street short-sellers of certain stocks, by forcing them to hike the collateral held with the clearinghouse massively.

In true wolf pack fashion though, the Reddit submariners have slipped under the waves and reappeared in another part of the financial shipping lanes. This time the convey in question is the silver market, where the call to arms on the SS Silver ETF has seen silver jump 6.0% this morning in Asia, and rally nearly 13.0% over the last three sessions.

The Reddit wolf pack should tread more carefully here, though. Nelson Bunker Hunt and his brothers deployed the same strategy. While bearing fruit at first as silver hit USD50.00 an ounce, their attempts to corner the silver market came to a gruesome end in 1980. Silver plunged, as did the brothers’ fortune. With a large physical off-exchange market, and a lot more liquidity theoretically, than the sparely traded stocks dallied with so far, the retail wolf pack is in dangerous waters. The wolves of Wall Street may well be luring them into a trap in their Bunker Hunt for Reddit October.

Back in the real world, much more important things have been occurring. It appears that a military coup is happening in Myanmar today after the military didn’t do as well in last year’s elections, as they had hoped. State Counsellor Aung San Suu Kyi and the president amongst others have been detained. The military is citing “voting irregularities” in last November’s elections as its reason for seizing power back from the civilian government. The situation is not market-moving in itself, but if the words, “November election”, “voting irregularities” and “seizing power” are giving you a nagging feeling of Deja-Vue, you are not alone.

Being the first day of the new month, it is PMI Monday. Front and centre have been both official and Caixin China Manufacturing and Services PMI’s. All have disappointed, with NBS Manufacturing PMI easing to 51.3, but Caixin Manufacturing and NBS Non-Manufacturing PMIs missed badly at 51.50 and 52.4 respectively. Somewhat surprisingly, Asian markets seem to have forgiven China, especially after last week’s very poor close for Wall Street equities.

I suspect there a few undercurrents at work here. China’s domestic consumption has lagged in 2020 anyway and maybe feeling the impact of the Covid-19 restrictions imposed this morning. The same effects are likely to be affecting manufacturing, with Covid-19 restrictions internationally also weighing. We can also add in logistical bottlenecks and some pre-Lunar New Year distortions to the mix to explain away the disappointing numbers. With Lunar New Year falling across my birthday this month, the data could well be distorted again, especially as China’s government has told its citizens not to travel for a holiday.

Pre-Lunar New Year distortions, and Covid-19 restrictions, appear to account for the mixed performance of the pan-Asia Markit Manufacturing PMI releases today as well. Australia, Taiwan, the Philippines, South Korea and Indonesia outperformed. However, Malaysia, Japan, Thailand and Vietnam underperformed.

The PMI’s in totality, including China, suggest the momentum has slowed for now, although the pan-Asian recovery retains its upward trajectory. Logistical bottlenecks and the slower than hoped pace of Covid-19 vaccinations in developed markets means a long-overdue reassessment of the global recovery to H2 2021 is starting to occur.

The work from home high tech versus cyclical North Asia versus South Asia divide has reappeared today. Although US index futures were slammed in early trading, the S&P e-minis falling 1.0% in early trade, all three major index futures are now in the green. Markets in Japan, South Korea, Mainland China, Hong Kong and Taiwan all opened higher today and have stayed that way. Australian markets have moved into positive territory, but the ASEAN cyclical markets all opened lower in line with Wall Streets close and have stayed negative this morning. That too is in line with the reassessment of a slower recovery pace in 2021, although I still expect ASEAN to outperform this year.

The day’s other big event with be India’s budget this afternoon. Markets will be looking for a fiscally expansionary budget to boost India’s recovery. The law limiting the fiscal deficit to 3.0% of GDP will be ignored once again and is predicted to stretch over 7.0% of GDP this year. That will be paid for by selling stakes in SOE’s although India’s track record on this front is abysmal. Markets will be watching out for revenue collection improvements, although any sign of new taxes will probably undo any good work in the budget elsewhere. Assuming new taxes remain of the menu, the budget should be broadly positive for local equities and the rupee near term. Plenty of foreign money will be happy to finance the government’s largesse.

Looking ahead, the Biden stimulus package has been notably quiet of late. A group of moderate Republicans have posted an alternative USD600 billion stimulus proposal, making the initial spread USD600 billion at USD1.90 trillion. The progress of negotiations will soon recapture the financial market’s attention, and if the package looks like being watered down closer to USD1.0 trillion, markets will probably see Reddit.

Elsewhere, the Reserve Bank of Australia announces their latest rate decision tomorrow. That will leave rates unchanged with all the attention on the statement and the press conference afterwards. Most specially to see if their economic outlook was as cautious as the Federal Reserve’s, and if they remain, therefore, as dovish as previously.

US Non-Farm Payrolls get released on Friday with markets pricing in a gain of just 20,000 to 50,000 jobs added, concluding what will be a hectic week on several fronts.

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