The dust settles

An air of calm has returned to Asian markets today after the China equity sell-off after escalating government clampdowns on the technology and education sectors. Helping things along was Wall Street trading sideways as equity markets moved into wait-and-see mode ahead of US big-tech earnings results and this week’s FOMC meeting. Despite the calm this morning, the repricing of China regulatory risk is likely to continue for some time yet.

South Korean Advanced GDP for Q2 rose by 0.70% QoQ this morning, notable for its significant increase in imports as the domestic economy improves. That follows the extra budget approved over the weekend, with direct payments to most households as the country attempts to overcome its Covid-19 hiccup and keep its recovery on track. In totality, this should be enough to keep the Bank of Korea on track for its 4th quarter rate hike, and the Won has duly rallied this morning, although USD/KRW remains near 9-month highs.

China Industrial Profits rose by 66.90% (YTD) YoY for June, near consensus but lower than last month 83.40% as 2020 baseline effects fade. Profits rose across both state and private companies. The data suggests that China’s recovery continues, albeit with the same supply chain and material cost challenges the rest of the world is experiencing. The data impact will be low as investors remain transfixed on China regulatory risk and are likely to for some time.

Bitcoin fell from USD 40,500.00 to USD 36,500.00 this morning after Amazon denied it was looking at either issuing its own digital coin or was going to start accepting tokens as payment. Bitcoin’s 100-day moving average, today at USD 40,603.00, capped the rally last night. Despite today’s retreat, the digital Dutch tulip is still holding onto most of its gains from yesterday. A move higher through the 100-DMA will signal the next leg higher.

I received a few vitriolic emails yesterday about calling Bitcoin nonsense. One odd chappy from America sent me about 200 links on blockchain and called me a loser for not buying Bitcoin at 1 dollar. Fair play, but it is an opportunity cost, not an actual loss. I did not buy Tesla in 2017 either and I sleep soundly at night, no FOMO-itis here. To clarify for all my readers, I believe digital currencies and their equally smelly un-stable coin brethren are indeed digital Dutch tulips.

To be fair, though, and as I have said before, bitcoin and its ilk are tradeable assets, if we must use that word, but are not investable assets. There is a difference. As for the blockchain, it is indeed an exciting frontier. But show me a buyer of Bitcoin in 99.999999999999999% of circumstances who says, “I’m buying it because I believe in the potential of the blockchain,” and not “I want to double my money in 24 hours,” and I’ll show Elvis Presley alive and well and living in Bali.

Looking ahead, the data calendar is relatively thin across the globe today, leaving markets to the tender mercies of headline-driven volatility for the rest of the session. US Durable Goods is unlikely to move markets as the street awaits earnings from Apple, Alphabet and Microsoft today, and the FOMC outcome early Thursday Asian time.

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