The news flow on Friday was thin gruel again as the holiday lull continues.
There were more promises out of Beijing with regard to China’s commitment to defusing financial time bombs and otherwise working to mitigate risks embedded in the economy.
Specifically, the Finance ministry on Friday said it would work to ameliorate risks hidden in local government debt. China intends to lean on infrastructure spending in 2020 to bolster growth, but that likely entails local government special bond issuance and more activity from LGFVs which have sold more than 8 trillion yuan of RMB-denominated bonds. Bloomberg data suggests around 1.3 trillion will mature in 2020.
Throw in the tendency for those vehicles to guarantee the debt of private enterprise and you’ve got what we’ve variously described as a “mind-boggling” array of cross-holdings and overlapping obligations that will be next to impossible to sort out in a pinch.
Beijing also reiterated on Friday that China will improve the effectiveness of fiscal policy and emphasized the importance of coordination with the PBoC.
There was also a nod to improving the country’s tariff policies – no details were provided. Earlier this month, China announced lower tariffs on hundreds of products accounting for around a fifth of exports. As of now, it does not appear that US exporters will benefit thanks to the retaliatory tariffs still in place tied to the trade war.
Earlier Friday, China said industrial profits rebounded sharply from October’s record plunge.
Tech shares led gains globally on the back of the Nasdaq’s ascent to 9,000. The Hang Seng played catchup after the holiday, rising 1.3% to the highest since July. Volatility is sitting near the lowest in years.
That, even as the economy buckles under the weight of the protests. Hong Kong is, of course, in a recession.
Global shares are at record highs (the MSCI all-country world index topped its January 26, 2018 peak earlier this month, and it’s gone higher since). Ditto for the Stoxx 600 across the pond.
“Year-to-date gains are impressive across the board and while FX market folk everywhere asked Santa Claus for more vol, I suspect equity people just asked if they could do 2019 all over again in 2020”, SocGen’s Kit Juckes wrote Friday morning.
In these ebullient times, let us not forget the proverbial reason for the season.
“I do not expect a turnaround to a positive interest rate environment next year”, ECB policymaker Robert Holzmann said in a Friday statement.
That pretty much sums it up.