Consensus is mistakenly over analyzing the activity data during the Spring Festival. Good data mean recovery, bad data suggest more stimulus. Indeed, PBoC’s balance sheet expansion has heralded a positive turn in economic cycle.
With data vacuum, we are at the inception of intense speculation. China’s savings glut many taken as a sign of extreme risk aversion can be the fuel for a spring rally.
Last week’s epic rally started around the nadir seen in first COVID outbreak in Feb, 2020. Since then, the US welded its fiscal/monetary prowess, while China sticking to COVID-0. Chinese market is back to square one. The US will follow.
Both US and Chinese growth assets fell victim to a growth slump. Vietnam, the “Next China”, is not spared.
Hong Kong short covering. But soaring HIBOR augurs for volatility surge in the coming months originated from the US market.
Chinese PPI, Chinese 10-year yield and US NFIB hiring data suggest US inflation has peaked. These are obscure indicators/relationships. But slowing inflation augurs for a US recession – it is not a cause for rejoice.
The hedging relationship between stocks and bonds still works in China – unlike in the US. As such, China is still a normal market where prices can be more informative.
Hong Kong is deeply oversold. Despite US recession risks, there is a trade here.
