There was bad news and good news on Monday morning for markets that are on edge amid ongoing signs that the global economy is headed for a downturn and worries that monetary policy is constrained in its capacity to ride to the rescue.
The bad news is, Boeing isn’t going be doing US stocks any favors today. The shares were crushed in the pre-market as investors fret about best-selling narrow-bodies that appear increasingly prone to falling out of the sky. China and Indonesia grounded all flights of 737 Max jets, raising the specter of a corporate crisis at Boeing. Carriers across the world are reserving judgment for now – for now.
The good news is, Chinese equities bounced back sharply after Friday’s horrendous losses, a notable development considering February’s muted credit growth data out over the weekend.
Yi Gang’s Sunday remarks that small businesses are set to receive more support from the government (effectively reinforcing a policy priority) appear to have juiced the ChiNext, which had one of its best days this year, surging 4.4% to start the new week. Monday was the third session this year that the gauge of small caps and tech shares has rallied 4% or more in a single day. The ChiNext is up an astounding 38% in 2019.
On one hand, I suppose you could say the ChiNext is due – it’s fallen for three years in a row and 2018 was particularly heinous, as losses approached 30%. Still, a near 40% rise in the space of two months seems a bit excessive. But who’s to say what’s “excessive” over there? After all, it is a casino.
Other Mainland indexes recovered after Friday’s swoon as well. The SHCOMP rose 2% and, notably, is back above 3,000.
“Monday’s gain came despite several articles in the state-run Securities Times warning of risks associated with speculative trading”, Bloomberg wrote Monday morning, before quipping that “Friday’s slump wasn’t prominently featured in the state press.”
While we’re still a long way away from the type of rabid, foaming-at-mouth sentiment that characterized China’s margin-fueled equity bubble that burst in spectacular fashion during the dog days of summer in 2015, there are signs that froth is picking up as a “FOMO” mentality takes hold.
“The recent pick-up in retail trading activity/sentiment has reminded investors of the melt-up scenario in late 4Q14 to 1H15, during which the market rallied 126% on Rmb970bn ADT and 14x turnover velocity (period average)”, Goldman writes, in yet another new note on A-shares, adding that “margin outstanding balances have risen 19% from their troughs in Feb, new investor accounts have spiked 41% wow last week to 316K, and turnover has averaged about Rmb0.7tn over the past month, compared with the ytd run rate of Rmb470bn.”
So, there’s that. If you remember anything about early 2015 you know that we are nowhere near the type of euphoria that gripped A-shares during the mania, so conceivably, there’s more room for the Mainland rally to run. That said, Friday’s government-approved People’s Insurance Company Group downgrade suggests Beijing won’t likely countenance a repeat of what happened three years ago.
As noted Sunday evening, all eyes will be on January retails sales on Monday morning. Jerome Powell delivered a bunch of throwaway comments on 60 Minutes on Sunday evening, which essentially amounted to a rehashing of recent messaging.