Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Monday, July 17.
State of Play
Two major news items weighing on commodities markets. The first is about Russia suspending a grain deal it had with Ukraine. Elsewhere China reported slower GDP growth than anticipated. As of 0645 investors appear a little cautious as a result:
Stock index futures are pointing to small losses, with the Russell 2000 that tracks small caps down 0.2%. Other indexes are unchanged;
Industrial commodities are dropping, with copper down 2.7% and WTI crude oil off 1.7%. Wheat prices are up almost 3% however on the Russia news;
Bonds are seeing a few bids, with the 10-year yield down 4 basis points to 3.78% and 2-year yield down 3bps to 4.72% (yields move inversely to prices).
Known Events
There isn’t anything on the calendar to speak of, so that leaves us pondering the China news. The data wasn’t all bad, for example industrial production increased more than anticipated and the quarter-over-quarter GDP growth also exceeded expectations.
However this being official China data from the CCP, the bigger concern is over exactly what authorities are willing to admit. The headline year-over-year GDP figure is the one most closely watched by markets and also the one authorities hang most of their pride on. The official figure of 6.3% fell well short of the 7.3% anticipated by economists. Also telling that the number 8 (good luck in Chinese culture) is nowhere to be seen in this release, though the number 4 (bad luck as the character is close to the one for ‘death’. Also close to the one for ‘west’ if you must know) was also absent.
Disconcertingly, China also reported another record high in youth unemployment. A country that cannot keep its young people employed could soon face other issues. Speaking of other issues, China’s foreign minister hasn’t been seen in weeks, prompting speculation. It’s unlikely he’s being sent to reeducation as he’s CCP brass so it could be due to infighting. Which again doesn’t speak well to stability inside the world’s second-largest economy.
The Bottom Line©️
Last week was a good one for stocks, though the Russell gave back some of its gains on Friday. The Russell has been a bit of a leading indicator so the fact that it’s down again this morning is maybe a cause for some concern. It would make some sense for investors to take a few profits here. There were several bullish headlines over the weekend, especially over the AI hype train, which is a big red flat for contrarians.
We get a bunch of earnings this week and crucially US retail sales tomorrow. Those should end up setting the tone, but investors are on edge a little bit now versus late last week so there is that…
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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