Paying up

Evergande makes first payment ahead of deadline

China state-backed media is reporting that Evergrande has wired its USD 83.52 million overdue offshore bond coupon payment today, just ahead of the end of the 30-day grace period tomorrow. Given that it is state media, who don’t say anything without government approval, I am inclined to believe it. That should give a temporary reprieve to the China financial system contagion fears although I note that Evergrande has another grace period payment due on the 29^{th of} October of USD 45.17 million. Still, if they’ve managed to scrape together the funds for this one, it is reasonable to surmise that next weeks will also be met. That should provide some relief to China equities, especially Hong Kong, into the end of the week.

Elsewhere, Nasdaq futures are falling in Asia this morning after Snap sank 24% in aftermarket trading on the back of poor earnings. The blame was laid squarely at Apple’s door and their new privacy rules stopping advertisers from following you around the internet and slurping up your data. My heart bleeds. Snap’s results have seen investors mark down fellow Caligula’s of privacy, Facebook, or as the new “holding company” may be known, Faceplant, and Twitter amongst others. Intel also produced less than stellar results. Shorting big-tech has been a good way to lose money in the past two years, and I expect only a temporary aberration. Still, it may lead to a sombre mood into the end of the week in New York.

US Initial Jobless Claims fell under 300,000 jobs overnight to 290,000 overnight. Existing Home Sales soared to 6.29 million and while the Philly Fed Manufacturing Index for October fell to 23.80, the other sub-indexes such as Business Conditions, Employment, Prices Paid and New Orders all recorded strong gains. When taken in totality, the US data was quite positive and bought the Fed-taper trade back out of cold storage. The US dollar unwound some losses, US yields rose, and stocks tempered gains.

The change in direction was more a gentle drive around the roundabout, as opposed to a handbrake turn in a cloud of smoke. Although I believe the Fed taper will define Q4 once we get earnings out of the way, US earnings season will continue to dominate sentiment and rightly so. Thus, the overnight moves do not represent a shift in momentum; yet. President Biden continues to make progress on his spending plans allegedly, and this will also be supportive of equities, particularly the inhabitants of the Dow Jones. US equities in general will like that a vicious corporate tax hike appears to be no longer on the table.

Possibly the easiest trade of 2021, short Turkish lira, got another boost overnight. Under the auspices of Erdogan-omics, i.e., cut rates or be unemployed, the Turkish Central Bank cut rates by 2.0% overnight, despite rocketing inflation. The USD/TRY-my-patience rose by 3.30% to 9.5250 and a 10.0000 handle seems only a matter of time. The strongman leader (it’s always a man) is alive and well in the world and I feel sad for Turkey, one of the most wonderful countries I have visited. Still, like the Firestarter in Brazil, he was voted in, and you reap the marginally democratic populist seeds you sow.

In Asia, Japan markets will be boosted by the Jibun Bank flash PMIs for October. Manufacturing and Services PMIs climbed to 53.0 and 50.7, expansionary territory. Even official Inflation and Core-Inflation rose into positive territory to 0.20% and 0.10% respectively. Not bad for 30-years work, or is it 20 years? What’s a decade between friends? However, a reality check is given but inflation ex-food and energy prices, which came in at -0.50%. Don’t break out the end of deflation champagne yet. Still, it should put a smile on Japan equities after the Nikkei experienced a mysteriously torrid session yesterday.

Later today, Malaysian inflation should remain a benign 2.0% as the country reopens. The Thailand Balance of Trade and Philippines Budget Balance won’t make pretty reading. A Malaysian official said today that the country could reopen to international tourism next month. I believe that the reopening story will continue to dominate ASEAN short-term sentiment with a slew of similar announcements over the past two weeks. Thailand will be a major beneficiary, especially if the Northern hemisphere winter is a really cold one. Malaysia and Indonesia will also continue to find support from the commodity space.

The United Kingdom (sort of) will release Retail Sales and PMI data this afternoon. A soft retail sales print might take the heat out of the Bank of England hiking trade. There seems to be a feeding frenzy developing in this space and the street might be getting ahead of itself on this one. Australia’s RBA delivered a similar dose of reality to markets this morning by intervening to cap the rise in 3-year bond rates. Softness in the UK data might see some long-covering in the sterling which has become a crowded trade.

European countries and the US also release Markit Manufacturing, Services and Composite PMIs. With the Fed taper trade rearing its head again last night, higher PMI prints may temporarily give the tightening trade more momentum into the end of the week, especially as US earnings today features a B-list of celebrities. I expect the earnings story to regain its hold on markets next week, but there may be more two-way volatility in the buy-everything reactions, especially if giants such as Facebook report similar difficulties like Snap and Apple stuck in its throat.

I was going to talk about Bitcoin, but Elon Musk has tweeted overnight. The primary driver of the emperor’s new clothes, mainstream financial asset, institutional money is pouring in, inflation hedge, deflation hedge, stagflation hedge, store of value, insert perpetually bullish comment here ……, digital coin has spoken. I’m still looking for USD 80,000 of US taxpayer-backed fiat currency, though.

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