Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Monday, Aug. 21.
State of Play
The People’s Bank of China cut rates overnight, but not by as much as expected. Stocks in China and Hong Kong are selling off as a result but other markets appear unaffected. As of 0640 we are looking at some cautious risk-on potentially developing:
Stock index futures are pointing to gains, led by tech. The Nasdaq (QQQ 0.00%↑) is up 0.5%, with S&P 500 (SPY 0.00%↑) futures up 0.4%;
Commodities are gaining ground, with WTI crude oil up 1% to trade around $81.50/barrel. Natural gas is up 3.5%;
Bonds are selling off a bit, with the yield on the 2-year up 3 basis points to 4.97% and the 10-year yield up 5bps to 4.30% (yields move inversely to prices).
Cryptos are down a bit. Bitcoin just dropped below $26,000, down 0.7%.
Known Events
It’s another slow Monday. All that’s on the calendar are a couple of bond auctions. That leaves plenty for us to ponder however, starting with China.
Much doom porn drama from US news outlets over the weekend. The Wall Street Journal on Friday crowed about an impending ‘Lehman moment’ and doubled down again this morning. The New York Times told its readers China is “on the edge of a fallout.”
Raising Lehman is to financial markets what raising a certain failed Austrian artist is to political markets: highly dramatic language that might get some people frothing at the mouth but will otherwise prove insignificant. The South China Morning Post (a political mouthpiece of the CCP, it is true, but also one that is much closer to the ground than western media) said as much.
The Bottom Line©️
Sure, China is a point of concern. We’ve been telling you about this since at least September 2021 when the Evergrande stuff first surfaced. Numerous western companies stand to lose business over this. This was discussed at length in Thursday’s issue if you care to revisit. But if you’re expecting a Lehman moment, good luck.
The week ahead has some earnings, with Nvidia (NVDA 0.00%↑) the highlight on Wednesday. The Jackson Hole Symposium kicks off on Thursday with Jerome Powell’s keynote scheduled for Friday. We can discuss that later in the week and of course monitor Fed funds futures, which are right now pointing to a 89% chance of no change at the next FOMC meeting on Sept. 26. There too it’s important to keep the drama in perspective. This level hasn’t moved in weeks despite all the noise we’ve been hearing about rate hikes.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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More China Drama; Earnings, Jackson Hole Highlight Week Ahead