Earnings season keeps on earning

The Fed taper trade has been well and truly kicked to the sidelines for now. Earnings are dominating the headlines and market sentiment, even as bond yields, energy prices, commodities and rate hike expectations around the world continue to creep higher. It is with good reason though, Q3 earnings for the most part in both the US and over in Europe have been very positive. Notably, from my perspective, FMCG giants such as P&G have been able to hike prices to offset rising input costs, something I thought that sector would find very challenging. Tesla delivered overnight as well, showing strong growth in net profit, revenue, and deliveries. Shares eased slightly though in a classic buy-the-rumour, sell-the-fact move. I still struggle with the concept of buying an EV in countries such as China, Singapore, and Indonesia for example, where most of their electricity is generated from fossil fuels. And readers should look up the costs of replacing a tree-hugger friendly battery pack on an older Tesla that is out of factory warranty, it is interesting reading. They do look cool though and have a high “wokeness” index.

Bitcoin climbs to record high

Bitcoin had another emperor’s new clothes rally overnight, tracing out new all-time highs around USD 67,000.00 of tax-payer backed fiat US dollars before some long-covering saw it retreat back to USD 64.600.00 in Asia. The crypto-vangellists, after being in hiding for a while, are out in full cry once again. Out trots “mainstream acceptance” thanks to a couple of Bitcoin futures-backed ETF launches this week. Initial impressions are that they are just another playground for speculative day traders without the aggravations of setting up a crypto-account and a wallet to buy the digital-physical. The “inflation hedge” is circulating as well, which begs the question, why are equities where they are then, surely interest rates must rise? Buying US dollar or a commodity currency is probably the easiest inflation hedge out there. I will fall off my chair if one of the “institutional” experts starts mentioning the future potential of blockchain and bitcoin in the same sentence; it’s original raison d’etre I thought.

It will be interesting to see how the digital Dutch tulip space copes with the unwinding of QE globally in 2022, as well as rate hikes, potential regulatory threats and a group of world central banks who aren’t going to sit by and let cryptos take away their monetary policy lunch. And don’t get me started on (un)stable coins and their supposed, but surprisingly opaque to public scrutiny, dollar for every coin backing.

Still, I won’t stand in front of the price action, which is as powerful as the argument of bitcoin as a store of wealth because it has a finite supply is not. Cryptos are a tradeable, if not investable asset class for now, and the technical picture remains very bullish. The price action and momentum as everyone tries to get rich quick, I mean invest in the future of money, should be respected. Only a fall through USD 59,000.00 changes the positive outlook and I continue to target further gains to USD 80,000.00 of US fiat currency.

Elsewhere, Evergrande and Evergrande Property Services shares have started trading once again in Hong Kong after an attempt to sell the latter by the former fell through. The market has voted with both tumbling by around 10.0% this morning. Evergrande’s 30-day grace period on a missed foreign currency coupon payment expires this Saturday, and could trigger a cross-default on other debt instruments. Following other Chinese developers’ recent defaults, the Evergrande story and the leverage in China’s property development sector could make an overdue return to the front pages this weekend and see markets up for a shaky start on Monday. Comments from Evergrande itself on its financial position, and a 97.0% slump in sales won’t inspire confidence.

An accelerating deterioration in that situation next week could give China’s policymakers a conundrum. Their silence on the issue, apart from some throwaway comments from the PBOC, has been deafening and has frazzled nerves among investors. The important China Communist Party Central Committee meeting occurs from the 8^th to the 11^th of November and if past form is something to go by, China’s leaders won’t want any economic boat-rocking ahead of it. I expect China’s “national team” to be on the bid in mainland equity markets at the first sign of trouble, and the PBOC will make sure liquidity is added if needed, and the yuan remains in Zen-like stability. The government may choose to let Evergrande run if course while supporting markets elsewhere, we shall see.

Asia’s data calendar is, once, again, bereft today. South Korea PPI unexpectedly slipped to 0.20% MoM in September from 0.50% in August. I suspect that it is only a temporary aberration, and more upside pain lies ahead. In that spirit, a few hours earlier, the US 20-year bond auction has a weaker bid-to-cover ratio and saw the 10 and 30-year yields moving higher once again. For once, the US dollar did not find support from that, drowned out as it is, in the noise of earnings season, interest rates expectations elsewhere and commodity currency outperformance.

Europe’s calendar is similarly dull with US Initial Jobless Claims, a series of Philly Fed indexes and Existing Home Sales the highlights. The US 5-year TIPS auction will make intriguing viewing, but all of this will be swamped with an avalanche of Q3 earnings reports this evening. It is quite a cross-sector group announcing today, and if they follow the pattern thus far, the music will continue playing. Great bottom lines and no concerns clouding the 2022 outlook equals buy everything.

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