2020-02-19

The Path to USDJPY 175

USDJPY has moved out of a triangle pattern. If this move holds and establishes a bull trend, the next target is 125.

Upon reaching 125m USDJPY hits resistance. A break above that level would complete a well-formed inverse head-and-shoulders. That would have a target of 175.

A move of this magnitude would be ~60 percent advance in USD or ~40 percent devaluation of the yen.

Gold is confirming a "deflationary" interpretation here as it rallies along with USD, a break from it's very long-term correlation with JPY.

If gold moves through $1600 and DXY through 100 and both moves hold, the "fiat burns from the periphery to the core" scenario I've discussed here for many years is in play. The broad trade-weighted USD (currency weights: EUR 18.7 percent, CAD 18.5 percent, CNY 12.4 percent, MXN 11.3 percent, JPY 9.1 percent; total 70 percent) points to a 30 percent rally if its basing pattern completes with a bullish breakout.

Coronavirus Burning Out in China, Still Accelerating Outside of China

The focus should be on the rest of the world now. China still matters for economic reasons, but the pandemic will widen if case growth continues on the current trajectory.

Palladium Clock Adds a Tick and a Tock

This weekend I discussed the potential for a melt-up top in palladium with a run towards the $3000 to $3150 area. I didn't expect it would take off right away, as the prior tops in 1980 and 2001 took 2 months and 12 months, respectively. Yet begin immediately it did, with palladium jumping 8.8 percent on Tuesday. Palladium has rallied again as of Wednesday morning. It is off the high for the day, but from the intraday high of $2842.50, the $3150 target is slightly more than 10 percent away. Palladium could top as early as this week.

The 1980 top came at the end of a major commodities bull market and the 2001 top came at the end of a major equities bull market, and this top is coming in the midst of an historic bull market in equities and bonds.

2020-02-18

Chinese Developers Self-Rescue With Price Cuts

Chinese developers under pressure from the coronavirus slowdown will self-rescue by attracting customer cash. If the market doesn't return to normal in March, expect aggressive price cutting across the industry.

iFeng: 房企促销“自救”:目前唯一能撬动客户的只有降价
Zhang Dawei said that if the epidemic could be eased in February, the pressure on housing companies would be relatively manageable. Once the epidemic spreads to March, due to the pressure of debt due and the cash flow of sales sharply reduced, some real estate enterprises, especially those with high leverage and expensive capital, would be unable to carry it, and the enterprises must save themselves.

Yan Yuejin, research director of the Think Tank Center of the E-House Research Institute, said that Evergrande's approach has inspired other housing companies and proactively provided preferential housing conditions to occupy the market. It is expected that the following major real estate companies will follow up, grabbing customers through price reductions and preferential promotions is the key content.
Sales are off amid the coronavirus shutdown:
Behind the big sales promotion is the grim situation that housing companies face in the first quarter.

On January 26, the China Real Estate Industry Association issued an initiative to effectively prevent the spread of the new crown pneumonia epidemic, and advocated that real estate development enterprises temporarily suspend sales activities at the sales office and resume after the epidemic. Previously, the competent units or industry associations in Ganzhou, Chengdu and other places issued a document requesting that the sales office be closed during the epidemic prevention period.

The list of "Top 100 Real Estate Companies in China in Sales in January 2020" released by Kererui shows that in January 2020, the sales thresholds of each of the top 100 real estate companies in the list decreased year-on-year. As of the end of January, the threshold for the sales of TOP50 real estate companies was 2.53 billion yuan, a maximum of 27.5%; the threshold for the sales of TOP100 real estate companies decreased by 19.1% year-on-year to 900 million yuan. From the situation of the top five housing companies, sales of Vanke and Country Garden increased by 16.1% and 0.12% year-on-year, respectively. Sales of Evergrande, China Shipping, and Sunac fell by 5.7%, 20%, and 22.6% respectively in January.

At present, more than 20 provinces (autonomous regions and municipalities) have suspended the opening of sales offices, stopped construction sites, and suspended intermediary stores. Zhang Dawei said that the epidemic situation has not eased and the market is unstable. It is estimated that from late January to February, the transaction volume of the national real estate market fell by more than 80%.
Evergrande has already fired the first shot.

SCMP: China Evergrande slashes prices of new flats by a quarter as coronavirus leaves developers struggling with plunging house sales
China Evergrande, the country’s third biggest builder by value, said it will kick off a one-and-a-half-month campaign offering discounts of up to 25 per cent at all of its projects across the country.
The company, chaired by China’s third-richest person, Xu Jiayin, said in a statement that “to cope with the changes of the new period, Evergrande will offer special big discounts at all of our projects, starting from February 18.”

2020-02-17

China BigTech Fully Implements Social Credit Infrastructure to Fight Coronavirus

Chinese Internet giants are using the social credit infrastructure to fight coronavirus.

Nasdaq: China seeks help of national tech giants to track coronavirus with QR codes
On Wednesday, Alipay, the payment app operated by Alibaba's financial division Ant Financial, released a feature in collaboration with the government that assigns a coloured QR code representing the health of residents in Hangzhou.

Users in the city fill out an online form reporting their ID number, whether they have travelled outside Hangzhou recently, and any symptoms they might have that suggest an illness, such as fever or a heavy cough.

After filling out the questionnaire, users receive a colour-based QR-code, a type of barcode, on their mobile phones indicating their health status.

Users with a red code are instructed to remain quarantined for 14 days and provide regular check-ins via DingTalk, a workplace chat app also run by Alibaba.

Users with a yellow code are instructed to stay inside for 7 days, while users with a green code may travel freely.
The system is currently fragmented by city.
Caixin: 浙江率先破解复工难 杭州以报备代替审批
When applying for a health code on Alipay, the reporter found that the data including the recent address, whereabouts, history of contact, and current health status came from the user's initiative to declare. At present, the health code data of various cities and counties in Zhejiang are not interlinked and need to be separated.

...From 00:00 on February 17th, Hangzhou's public transportation and road passenger transportation have been fully resumed. Both the driver and the driver need to use the health green code to register and activate the QR code on the taxi. Passengers are required to cooperate with the scan code to ensure the driver and driver information. Truly traceable.
Anyone think this system will go away after coronavirus? The next phase will be removing cash from the economy such that it is impossible to engage in economic activity without a QR-code or similar account.

Rest of World Seeing Rise in Coronavirus Cases

China's numbers suggest it has a handle on the virus. Case growth has fallen into the single-digits and stayed there. Whether that's true or not will be clear in another week. I'm skeptical of the assumption that China is lying about the total number of cases and the growth. It's very likely they're under counting the total number of infected because it's impossible to accurately count potentially millions of infections. The case numbers can only be modeled. However, as long as case growth is under control, they can begin restarting normal work schedules. Getting the latter wrong will be a grave mistake because infecting a workplace restarts the 14-day quarantine. They risk shutting down the economy for half of March and more likely all of March because the public will lose confidence if there are setbacks.

Meanwhile, there are few controls in the rest of the world and case growth has re-accelerated into the double-digits. Cases will double every 6 to 8 days at current rates.

Chinese Finally Heading Back to Work, HK Shows Need for Preparedness

Caixin: China Factories Stand Ready to Go, But Where Are the Workers?
But despite reopening, resuming full production remained difficult due to staffing issues. Of the companies surveyed, only 21.8% said they had enough staff to run a full production line. Respondents cited Covid-19 related travel restrictions and a mandatory 14-day quarantine period for returning workers as the two biggest factors keeping their shops understaffed. When asked what their biggest challenge would be over the next two to four weeks, 41% cited lack of staff as their top concern, ahead of logistics, which was the next top concern for 30% of respondents.

...Global electronics giant Foxconn, which employs an army of more than 400,000 on the Chinese mainland, is struggling to fill its factory floors after officially resuming operations on Monday. A broader survey of American companies in China released the same day showed that more than three-quarters also have insufficient staff to run a full production line.
If workers are being quarantined for 14 days and the holiday ended a week ago, a return to something approaching normal levels of economic activity should begin next Monday.

Traffic congestion remains lower than normal, but it picked up significantly on Monday in Shanghai and Beijing.

Meanwhile in Hong Kong, there are daily fights for toilet paper and rice.

Caixin: Opinion: Why Hong Kongers Are Getting Robbed for Toilet Paper
Fighting for rice and toilet paper in supermarkets continues every day in one of the world’s greatest financial centers, not to mention the hoarding of face masks and disinfectant. You would not expect to see these scenes in such a global city, shocking observers on the Chinese mainland and overseas as Hong Kongers panic more than those in the heart of the epidemic.
Early panic is called prepping. Late panic is called hoarding.

2020-02-16

China FinMin: No Stimulus Coming, Get Ready for Austerity

China's finance minister has put the kibosh on talk of tax cuts, loan relief and stimulative measures designed to save the economy from the coronavirus slowdown. The government isn't confident that its real estate and capital controls will hold, as this would be the first stimulus since the government's deleveraging effort kicked into high gear in October 2017.

ZH: Beijing Crashes The Party: Chinese Media Warns Austerity Is Coming After FinMin Says "Proactive Fiscal Policy" No Longer Feasible
There is just one problem: none of it is true based on what China's finance minister Liu Kin wrote today in Qiushi, the Communist Party of China’s flagship magazine.

First, a quick look at what the misleadingly titled Bloomberg article, which cited Liu, says, it is far from the blanket "vow" of unconditional fiscal stimulus that one would conclude based on just reading the headline, as just two paragraphs in we read that "the nation will further perfect and implement measures this year to reduce corporate taxes and cut unnecessary government expenses."
Global Times: China should get ready for belt-tightening following virus outbreak
While it is generally expected that fiscal stimulus and monetary easing will undoubtedly be the two main tools of central authorities for alleviating downward pressure on the economy and for maintaining macroeconomic stability, given the past experience and the financial risks currently facing China, a flood of spending programs seems no longer on the financial regulators' list of choices for stimulating the economy.

"China will face decreased fiscal revenues and increased expenditures for some time to come, and the fiscal operation will maintain a state of 'tight balance.', Chinese Finance Minister Liu Kun wrote in an article published on Qiushi, a magazine affiliated with the Communist Party of China Central Committee. In this situation, it won't be feasible to adopt a proactive fiscal policy by expanding the fiscal expenditure scale. I, and instead, policies and capital must be used in a more effective, precise and targeted way," Liu said. Chinese Finance Minister Liu Kun wrote in an article published on Qiushi, a magazine affiliated with the Communist Party of China Central Committee.

...However, it should be noted that fiscal space constraint is not the key reason for belt-tightening. Past experience with massive stimulus already showed that a flood of investments could lead to many consequences like high levels of local government debts, and to the detriment of high-quality economic growth.
This is an admission that China is out of "free lunch" policy space. Easing would risk inflating the housing bubble. It would risk a potentially large devaluation of the yuan.