China is "Stimulating", Again
Before market open today:
CHINA WILL CUT STAMP DUTY ON STOCK TRADING BY HALF FROM 28TH AUGUST.
CHINA ASKS SOME FUNDS TO EVADE NET EQUITY SALES TO BOOST MARKET.
CHINA ORDERS STATE BANKS/FUNDS TO BUY STOCKS
I also read:
Chinese stock exchanges have lowered margin requirements to encourage financing by investors.
And even this: China just suspended T+0
All in all it is less about fiscal policies around stimulating the economy than China wanting to boost consumption.
Here's another editorial that supports: Why Won't Beijing Stimulate China's Economy. The problem as stated in the above article is that debt growth in China is growing twice as fast as nominal GDP.
China likely has the highest debt to GDP of any comparable country by income level, and household debt that would be in the top third of OECD.
Regardless, China helping China indirectly helps the world.
Here is a chart (below) of how Chinese liquidity is rising again, which should help bolster world GDP.
Option Flow Showed "Their" Hand.
Luckily, I expected it: https://twitter.com/SamanthaLaDuc/status/1694058371878429016?s=20
- as discussed live in my trading room last week
Let's see if stimulus helps
Lots of $KWEB NOV 31+36 calls hitting the tape today with Oct 31+36 calls of size not to mention Sept $29.50C making a market.
Some folks are bullish China! FXI 0.00%↑
Last Tuesday morning I spied the bullish flow which turned out to be sizable:
"~190k Calls traded on $FXI with a 0.49 P/C ratio for the day and an overall volume 25% higher than normal... $KWEB... ~206k call options traded with a **0.05** P/C ratio for the day and an overall volume 77% higher than the last 30 days!"
Then today:
CHINA ORDERS STATE BANKS/FUNDS TO BUY STOCKS
China's market rallied 5.5%. Bespoke Invest shows how today was the 7th time since 2005 that China's CSI 300 gapped up 5%+ at the open.
Noteworthy: Last time I recall them doing this was ~Oct 24th - right after US equities + bonds bottomed - when there was a coordinated global CB intervention from Treasury/Fed/BOJ etc. This time: China is doing it alone, as Evergrande opens up -90% to stem market fears/panic.
Is Evergrande Counterparty Risk Lurking?
So how important is this Evergrande Bankruptcy on global markets?
1. Evergrande is down 90% today - first day after trading resumed since halted in 2017.
2. At same time, China announced reduced capital gains tax on stock trading by 50%.
3. AND Chinese government then ordered state banks & funds to buy stocks to boost failing markets.
So China is adding liquidity and intervening to stem local market fear/panic.
BUT, this government intervention wont’ be bullish If $USDCNH moves higher, as that will be another blow to Chinese banks/funds buying their own stocks.
This intervention won’t be bullish if there is more counterparty-risk lurking in the bush:
1. Evergrande filed chapter 15 bankruptcy protection August 17 from having to repay counterparties (how much derivative risk is always the question).
2. Global banks & crypto exchanges like Tether hold Evergrande bonds as ISDA contract collateral at potentially original historical value now practically worthless.
3. Ergo, IF no/little value, and no buyers, will margin calls trigger forced selling of US treasuries or other equities? Maybe not, but something to keep in mind as we may not know for a few weeks.
Or in the case of Evergrande / Tether, it has been years.
Conspiracies aside, Evergrande declared bankruptcy same hour Musk sold all Bitcoin for Space-X.
Curious, isn't it?
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