US nonfarm payrolls may be this week’s marquee event, but it’s hardly the only thing on traders’ radar.
Tensions between the west and China are running exceptionally hot, and while that’s nothing new, the Xinjiang issue appears to have reached a boiling point.
Gayle Manchin taunted Beijing after she was targeted in a fresh round of sanctions over the weekend. “I feel flattered to be recognized by Communist China for calling out genocidal crimes against religious and ethnic minorities in the country,” Manchin told Reuters. “While I don’t have plans to travel to China this summer, I won’t stop speaking out when egregious violations of religious freedom are taking place.”
Read more: Chafing At Xinjiang Rebuke, China Ready To Burn Off Some Fingers
On Sunday, in remarks to CNN, Antony Blinken called Sino-US relations “increasingly adversarial.” Earlier this month, Blinken met with Chinese officials in Alaska in what was widely derided as a farcical and pointless first meeting between the Biden administration and Xi’s top envoys.
The UN is negotiating with China for the body’s High Commissioner for Human Rights, Michelle Bachelet, to visit Xinjiang, according to UN Secretary General Antonio Guterres, who spoke to CBC. “I hope that they will reach an agreement soon and that the human rights high commissioner will be able to visit China without restrictions or limitations,” he said.
This all comes as mainland Chinese equities are grappling with a correction, while Hong Kong tech is waving a sharp stick around in a seemingly futile attempt to fend off an irritated bear. And then there’s Chinese ADRs, which are besieged on all sides. The NASDAQ Golden Dragon China Index is coming off its worst week in a dozen years, with nearly a quarter trillion in market value having disappeared into the ether.
In addition to de-listing and geopolitical concerns, Xi’s antitrust crackdown is causing immense consternation for Chinese tech.
Unwinds associated with a margin call on Tiger Cub Bill Hwang may have exacerbated the situation for a handful of names caught up in a multi-billion-dollar block trade binge that Bloomberg spent virtually all weekend suggesting could destabilize the broader market, a narrative which seemed overwrought to me. (It’s a “fun,” compelling story, but after the fifth article in 48 hours, it just felt like the envelope was being pushed.)
Analysts, including those at Goldman, which is at the center of the Bill Hwang trades, think the selloff is overdone. “The aggregate ADR market is trading at compelling valuations for long-term investors,” the bank said.
Some worry the situation with Hwang’s family office may be indicative of a broadly over-leveraged market, as opposed to just the latest chapter in a story that hasn’t always been entirely wholesome.
JonesTrading’s Mike O’Rourke expressed what sounded like doubt around the notion that the market will be subjected to any broader tumult. “The prime brokers made lots of noise in marketing these blocks,” he said. “They knocked the stocks down aggressively in order to get the trades done.” And yet, in a note dated Sunday evening, he delivered a longer, more cautionary take which included the following passage:
While the amount of leverage employed to amass these major positions remains undisclosed, there are only a handful of family offices in the world that have the capital to support more than $20 billion of volatile concentrated positions. The broad tape was lucky that the number of positions was so highly concentrated and much of it was China exposure. That prevented meaningful pressure from hitting the major US indices. The broad market’s ability to digest $20+ billion in equity liquidations is impressive, but the question is how much additional hidden leverage is out there in the system.
Apparently, Nomura suffered a “significant” loss in its prime brokerage unit amid the fallout from the trades.
In addition to US payrolls, the economic data calendar includes PMIs for China and ISM manufacturing stateside, with the latter likely to exhibit further signs of price pressures.
Also, Joe Biden will unveil details of the administration’s long-term economic plan, which he claims will “change the paradigm.” The US, Biden said last week, will “start to reward work, not just wealth.”
I don’t doubt Joe’s sincerity. I really don’t. But GOP cynicism and Democratic infighting will make the next stimulus push an uphill battle. Extreme acrimony tied to a highly dubious new Georgia election law will likely serve as a further impediment to bipartisanship.
For what it’s worth, which isn’t much given the unprecedented policy backdrop, US stocks are the most stretched in… well, ever, now that you mention it.
