Blain’s Morning Porridge – July 13th 2022: How long and deep is Inflation, and how close is China to a…
The world is watching for signs confirming global recession, so naturally markets have rallied (!). Political instability is resolved to be replaced with some bleak truths and spending choices. So.. steady at the wheel, nothing to worry about then?
Markets look distinctly soft, and vulnerable to further downside pressure. The gaps between value, hype and narrative are becoming clearer – spelling opportunity, but also raising the risk of a crash.
Calls to break up HSBC to realise the value of its Asian franchise are a critical moment for the bank as it pays the costs of being too big, too bureaucratic and for the inability of management to spot its critical weakness…..
Ultimately the economic history books will record Russia’s invasion of Ukraine as a speedbump, and perhaps a triumph for a United Europe. The consequences of an Economic War with China could be much, much more significant!
Evergrande’s imminent default is rocking markets – but few believe the collapse of a Chinese property developer could trigger a global financial crisis. What if Evergrande is just a symptom of a deeper malaise within the Chinese economy and its political/business structures? Maybe there is more at stake than we realise? What if Emperor Xi decides he needs a distraction?
China’s clampdown on big tech is painted as the Party’s programme to engineer a more socially-equal economy. This puts China way ahead of the West where the consequences of monetary distortion and the pernicious effects of social and wealth-inequality are well understood, but no one seems able to address them.
Even as China’s markets wobble, they will view The Afghan Skedaddle as an opportunity to pressure the US.
China’s markets are under pressure from the widening Chinese Communist Party’s regulatory crackdown – which is likely as much about imposing party discipline and control as much as it was ever about consumer protection. But as investors fret about crashing China stocks, rising global uncertainty and the destabilisation caused by the Afghan debacle, the Chinese are likely to up the pressure and further test a distracted US administration. “Interesting times” lie ahead for global markets as the tension threatens to escalate.
Some of the heat was taken out the escalating China Syndrome yesterday when the Chinese regulator held a “secret” meeting with global firms, while Jay Powell took the pressure out of immediate taper fears. Both issues remain sources of massive future pressure on markets – they are sorted for now, but not resolved!
Yesterday’s events across Tech served to remind us it’s a fluid sector where what we believe one day may be false the next, but deep down there is bedrock. Crypto currencies saw a last-chance bubble pop, while Tesla genuinely surprised me by producing solid results – which don’t for one moment change my perspective its fatally overvalued. Meanwhile, the latest China clampdown on listed stocks shocked markets, but reminds us we need to think differently about the wakening Dragon.