China Cuts RRR Again

Yikes.

Put Buying Spree

I have massive OTM puts on all of these. Plan on adding to XLE and XLI. I didn't buy puts on FXI, but included it because it is important for emerging markets. It looks like the same setup as in October 2008. I still have cash left and am looking to add more on one final pop in the market.

Bearish Looking Charts With Liquid Options

Assorted charts follow.

China Angry About Potential Pelosi Visit, August Terrible for China and EMs

Chinese Yields Slide Again

There is some optimism around China reopening, but I'm not buying it yet. The Chinese 10-year yield went negative again relative to the U.S. 10-year. This puts pressure on the yuan because it diverts idle dollars away from China (such as exporter earnings), and longer-term the Chinese and emerging markets funds are correlated with the direction of this rate spread.

Taiwan

FXI probably goes the way of RSX if there is an invasion.

Yuan Tracks Former Resistance, Volmageddon When?

Sometimes this happens: a security breaks a trendline, but then keeps following it for a time. USDCNY is moving in a bearish direction, but I still expect a reversal because the Chinese economy cannot handle a strong yuan.

For myself, I closed my long USDCNH futures about a week ago and bought FXI puts instead. FXI has drifted below support. I plan on going back into CNH, but they may hold off on letting it fall until after the Olympics. I expect yuan depreciation will be part of a market panic though, because I expect a new leg higher in DXY when that unfolds.

BTC is also retesting a minor short-term line.

China

2022 Forecast #1: Sharply Lower Yuan

Bullet points:

1. Technical support for USDCNY

2. Chinese policy moves such as RRR and interest rate hikes indicate dollar drought, confirmed by increased RRR for FX loans

3. General expecation of lower inflation and lower commodity prices in 2022, along with Fed tightening and dollar strength.

China

Ignore the China Bulls

ZH: China Cuts Benchmark Loan Rate For First Time In 20 Months To Counter Economic Slowdown

China cut its benchmark lending rate for the first time in almost two years on Monday providing support to an economy showing strain from a property slump and sporadic coronavirus virus outbreaks, the SCMP reported. The one-year loan prime rate (LPR) – on which most new and outstanding loans are based – was cut from 3.85% to 3.8% at the December fixing, while the five-year LPR – which is a reference for mortgages – remained at 4.65%, according to the People’s Bank of China (PBOC).

..."The cut reinforces our view that authorities are increasingly open to cutting interest rates amid looming economic headwinds," said Xing Zhaopeng, senior China strategist at ANZ. However, he noted the decision to keep the five-year rate unchanged showed Beijing preferred "not to use the property sector to stimulate economic growth."

“[The] cut will immediately feed through to outstanding floating rate business loans and should also lead to cheaper loans for new fixed rate borrowers,” said Mark Williams, chief Asia economist at Capital Economics, who described the one-year LPR as “another modest easing step”.

“We expect a cut to the five-year LPR before long which will make mortgages slightly cheaper and help official efforts support housing demand" adding that he expects "a further 45 bp of cuts to the one-year LPR during 2022." The PBOC has already pushed banks to increase the volume of mortgage lending.

Let me ask you a simple question. If the Federal Reserve starts cutting interest rates would you agree with all these bullish statements, or would you think the exact opposite, that more rate cuts are coming because the economy is weakening? Analysts are bizarrely bullish on China all the time. Many Wall Street analysts are paid shills at times, but I think the China analysts are paid shills all the time because saying negative things about China results in cancellation of Chinese business. Almost no one with serious business exposure in China is going to tell the truth.

Additionally, emerging market earnings track Chinese interest rates. If rates are going down, emerging market earnings are going down as are emerging market stocks. It may be that China and emerging markets bottom first in this downturn as they have in the past. I will be keeping an eye out for that. But I'm not buying here because I think lower prices are coming.

China has been propping up EEM. Once China cracks, the dam breaks.

Just When You Thought Selling Was Done...

Yields have pulled back on Friday, easing selling pressure in the stock market, but the U.S. dollar index is rallying back above its 50-day moving average. iShares Mexico (EWW) is below long-term resistance and has a small topping pattern.

FXI is also battling at support/resistance.

Italy right where it has failed every time since 2008. Haven't been watching this one, but if something is differernt this time, Italy should break through. Otherwise...

Steel ETF

The regional bank ETF hit a resistance line yesterday morning that is from the 2008 top and was hit in June 2018.

GDX perfectly hit my suppot line dawn from teh 2016 high. A strong dollar should weaken it, but I like the risk/reward here because it's right at support.

Hong Konked

August tends to be negative for emerging markets. Stocks such as HSBC are right at major support. Some such at LFC have similarly large topping patterns. CHL looks primed for a breakdown with support maybe around $25. I don't think the March 19 low at $29 and change will hold if tested.