There was “bad news everywhere” but you could scarcely detect it from the somewhat muted action on Wednesday — it’s largely the same situation on Thursday ahead of the long US weekend.
Sino-US tensions are boiling over. The House has passed legislation aimed at punishing banks for interactions with Chinese officials associated with the new national security law in Hong Kong. The Senate passed a similar measure late last week, and the bill will get one more go through the chamber (probably Thursday) before being sent to Trump’s desk.
This sets up a situation where the US will (likely) be imposing sanctions on Chinese officials in connection with human rights abuses in Xinjiang and sanctions on banks which do business with Party officials linked to the national security crackdown in Hong Kong.
“How are these individuals banked now? By Chinese banks. Will the NPC or Hong Kong government really be paid in cash from now on?”, Rabobank’s Michael Every sarcastically asks on Thursday.
“Hardly. In which case, the Chinese banks that bank them would, under this bill, be cut off from USD in exactly the same way Iran has been”, Every adds. “It is there in black and white. There might well be a lead time of a year to allow global positions to be unwound — but that would be the final destination”.
No matter though. The Hang Seng had its best day in a month in the first day of trading since the new security laws went into effect.
If you’re wondering whether the mainland is propping up the market, the answer is likely yes.
“One Hong Kong-based trader said he handled several buy orders on behalf of a state-backed Chinese fund”, Bloomberg writes, noting that “there are clear signs that Beijing intends to prop up Hong Kong’s financial system through inflows and a flood of stock listings by mainland companies”.
That has derogatory overtones, but how it’s much different (in principle anyway) from monetary and fiscal policy propping up US and European markets is anyone’s guess. When you think about it, it’s “natural” for the Communist party to do it. What’s the west’s excuse?
Meanwhile, passenger car sales on the mainland rose 11% last month, the third consecutive monthly gain.
Call it just another annoying sign (if you’re Donald Trump) that the Chinese economy is on the way back, even as the US struggles to get a handle on new virus flare-ups.
The Shanghai Composite is now in positive territory for the year.
Obviously, market participants will look to Thursday’s jobs data for “confirmation” that the US recovery is on track, although I would note the data is already stale.
New lockdown measures in California, Arizona, Texas, and Florida, mean some businesses that were either reopened or planning to reopen are now closed or curtailed, which means some rehired workers are at risk of being laid off again.
For anyone who enjoys a nice “meal” in the cozy confines of the local McDonald’s, you’ll need to wait at least three weeks. The company is pausing the restart of dine-in services in the US, and locations that have already reopened their dining rooms will need to take a look at guidance from public health officials when it comes to deciding whether to shut the doors again.
But don’t worry. Because, as Trump told Fox on Wednesday, “at some point [coronavirus] is going to sort of just disappear, I hope”.
In any case, it likely won’t matter. We’re in “summer lull” mode ahead of July 4 — a perfect super spreader event, I might add.