“My personal view is rates are likely to rise in the early part of next year, and not in 2023 which is currently the projection,” James Gorman said Tuesday, in remarks for the Nikkei Financial online conference.
Gorman also said that in his view, tapering will begin later this year. He’s confident about the US recovery and the economy more generally. Balance sheets, both consumer and corporate, are strong, he assessed. While Gorman doesn’t see long-term inflation becoming a problem, he described the Fed as very cautious.
Fed officials’ ongoing insistence that elevated inflation will prove fleeting was credited Tuesday with bolstering sentiment. “Lael Brainard grabbed the headlines among the various Fed speakers [Monday], and she sounded on-message and dovish, stressing the temporary nature of the current inflation spike,” SocGen’s Kit Juckes said. “Just what market bulls wanted to hear.”
European stocks gunned for a new all-time high, while Chinese equities surged more than 3% in the wake of Beijing’s efforts to jawbone commodity prices lower. It was the largest gain for the CSI 300 since last summer (figure below).
Overseas investors bought a net 22 billion yuan in A shares through the links. That was a record. Local analysts said the commodities crackdown prompted investors to seek safety in consumer shares with dependable cash flows. Kweichow Moutai surged, with Bloomberg citing reports from Chinese media about a plan to double revenue by 2025.
The same linked Bloomberg piece flagged yuan strength as the impetus for the influx of foreign capital. “The strong buying of foreign investors in A-shares has a lot to do with the stronger yuan,” one market participant said, noting speculation that officials may let the currency offset some of the inflation pressure building in factory gate prices.
Underscoring the “tightrope” characterization I often use to describe Chinese officials’ never-ending effort to juggle competing priorities, state banks intervened to arrest the yuan’s appreciation Tuesday, buying dollars in an apparent attempt to defend 6.40. “State banks jumped in to set a floor for USD/CNY,” one source told Reuters.
“Option traders are looking beyond [6.40] and risk reversal skews are heavily in favor of a strong yuan with a notable shift for deep out-of-the money USD put options,” Bloomberg’s Mark Cranfield wrote, adding that “traders expect an extended selloff for the dollar once the 6.40 line does break [with] the mid-6.37 zone, last seen in 2018, likely to be the initial target area.
State banks “quickly” moved into the onshore market once the offshore yuan breached 6.40, Reuters’ sources said.
Much of this depends on the dollar, of course. And that, in turn, depends on Fed communications. “Markets are right to focus on risks from the Fed — an unexpected hawkish pivot from the central bank is arguably the biggest risk to our bearish dollar thesis,” Goldman’s Zach Pandl remarked. “But we see little reason to think that the US policy outlook has shifted.”
If you think the daily ebb and flow is challenging to keep abreast of, just imagine being tasked with managing the situation.
And as should be abundantly clear from the above, it is all managed these days. The word “markets” is almost universally a misnomer.
As an “early accepter” of the fact that we are investing in managed, not free, markets- my main risk is that the institutions who manage said markets lose control. So far, I do not see anything to indicate that they are about to lose control. However, if I saw a situation where the market managers tried to engineer a specific outcome and were unable to do so- look out below.
I am also worried about three secondary level risks.
One is that a significant amount of investment capital is managed by people who still believe we are functioning in a free market- so they might make decisions that don’t seem rational to me- which could negatively impact me.
Similarly, investors (I am being generous by using that noun) in cryptos, SPACs, and high flying companies that have no pathway to ever making a profit seem to think that more and more capital will enter those types of investments. I think that those types of investments might have a significant fall because eventually, investors will wise up and/or the institutions who manage the global markets won’t save that portion of our markets. A tidal wave in that corner of our markets could negatively impact me, as well.
The third secondary level risk is that I am wrong about the above. If I am wrong, then more and more capital will enter those types of investments and/or the institutions who manage our markets will, in fact, also manage this corner, too. If this happens, I will miss out.
It is really hard to imagine that whatever crypto may or may not be that institutions who manage the market would forgo using them as an opportunity to create massive theoretical gains on their records. I mean imagine the idea that you get to show 1000% YoY performance. What egotistical psychopath could pass up the bragging rights? And it they ultimately affect what gets bailed out then why not? It isn’t a risky play to them. Regardless of what other value the market may or may not have I cannot help but see a small side bet on rampant greed being worthy.
Well expressed, sir. One thing H has done for me is to open my eyes to the machinations of the market engineers controlling this global financial monster we humans have created. What is now in existence has long since passed the threshold needed to facilitate the basic needs of a system of essential transactions. The issue, it seems to me is that the system now has two other goals, the moral one of managing global financial risk — which they don’t always get right — and the less moral one of facilitating the tremendous transfer of wealth to the oligarchs who underwrite the system, at least to some extent. To be honest, one of the most fascinating aspects of the whole thing is the role played by the unique, and so far successful, hybrid economy that has been constructed in China. Unlike the relatively independent CTAs, global private bankers and central bankers running the underside of our giant financial iceberg, China has bosses that can level fines, make people stop what they are doing or start something new if it’s needed and disappear the uncooperative. China could blow this system up, or protect it. We don’t really know which is more likely. As H often says, let’s wait and see.
Ah yes, Lucky One. Can you remember when financial markets mainly were focused on bringing together providers of capital with entrepreneurs and companies needing funding? Now they are mainly casinos for professional speculators.
And those speculators vigorously defend their playgrounds. Such as the heated reaction to any effort to rein in naked short selling or credit derivatives on credit derivatives (CDO squared).
Ah well, one must play the cards you are dealt, not the hand you wish you had.