In China they say speculation
And hoarding is now the causation
Of quite an ordeal
As copper and steel
See prices rise bringing inflation
(Or, the second variation on this theme)
The Chinese are clearly annoyed
That price signals have been destroyed
So, meetings were called
And price rises stalled
As punishment threats were employed
Markets are mixed this morning after a relatively quiet weekend, at least in the more mainstream markets. Cryptocurrencies, on the other hand, continue to prove they are nothing more than speculative assets with Bitcoin declining 20% before rebounding 16% in the past 36 hours. The proximate cause of that movement was a comment from the Chinese about cracking down on bitcoin mining, again. Whether or not this particular initiative succeeds, the one thing that is abundantly clear when it comes to the cryptocurrency space is that more and more governments are lining up against them. Do not underestimate government interest in regulating the crypto space out of existence, or at the very least to significantly marginalize it, as no government can tolerate a competitor for their incredibly lucrative monopoly of creating money.
Speaking of tolerance, the Chinese have also, this weekend, explained that they have “zero tolerance” for certain activities in the commodity markets like hoarding, speculating or disseminating misinformation. At a hastily called meeting of the heads of top metals producers, those words were used along with the explicit threat of severe punishment for violation of not only the letter, but the spirit, of the law. Remember, China executed the former head of Huarong, a financial firm, for similar types of issues, so the notion of severe punishment must certainly be taken seriously. It can be no surprise that metals prices fell in the Chinese session, with steel, iron ore, aluminum, zinc and tin all lower, although copper has maintained some of its recent gains.
From a market’s perspective, these were the only remotely noteworthy stories of the weekend. While the inflation/deflation debate continues to rage, and rightly so given its importance, and speculation over potential central bank policy changes remains rife, as of now, we have no new information on either of these stories and so it will remain entirely opinion, not fact. Of course, Friday we get the latest release of core PCE, which will certainly be above the 2.0% Fed target, and will certainly generate much tongue-wagging, but will have virtually no impact on the Fed.
A tour of markets this morning shows that movements have been modest and there is no direction or theme in any of them. Asian equity markets were mixed (Nikkei +0.2%, Hang Seng -0.2%, Shanghai +0.3%) and movements were limited. Europe has seen a bit more positivity, but only a bit (DAX +0.4%, CAC +0.1%, FTSE 100 +0.2%), hardly the stuff of dreams. Finally, US futures are the market putting in the best performance, with gains between 0.4% and 0.6% two plus hours ahead of the opening.
Bond markets are showing even less movement than stocks at this hour with Treasury yields lower by 0.5bps while Bunds and OATs are essentially unchanged. Gilts are the big mover, with the yields declining by 1.1 basis points. Even peripheral nation yields are essentially unchanged.
On the back of the Chinese comments, commodity prices are mostly lower although oil will have none of it, rising 1.7% this morning. However, while Cu is unchanged, Fe (-3.9%), Ni (-2.1%) and Zn (-1.1%) have all taken the Chinese to heart. Precious metals are little changed although ags are a bit softer.
Finally, the dollar can only be described as mixed this morning, with an equal number of gainers and losers in both the G10 and EMG blocs. And the thing is, those moves have been desultory, at best, with NOK (+0.25%) the leading gainer on the back of oil’s gains, while GBP (-0.15%) is the laggard, on position adjustments. EMG currencies are seeing similar types of modest movements with nary a story to highlight.
Data this week is also pretty sparse although that core PCE number on Friday will be closely watched.
|Tuesday||Case Shiller Home Prices||+12.55%|
|New Home Sales||950K|
|Core PCE||0.6% (2.9% Y/Y)|
There are several Fed speakers, but we already know what they are going to say, inflation is temporary, I’m sorry, transitory, and they have a significant way to go to achieve their goals.
At this time, given the central banks have all proclaimed themselves data dependent, until we get data that indicates a change in the situation, there is no reason to believe that markets will do more than chop back and forth. There is, as yet, no clarity in the inflation debate, nor will there be for a number of months to come. So, for now, the dollar seems likely to continue to chop around until we see a break in interest rates in one direction or the other. That said, if the inflationist camp is correct, then the first move should be for dollar strength alongside the higher interest rates that will ensue.
Good luck and stay safe