US equities were little changed on Friday, the S&P 500 up 0.2%. Equities were mixed in Europe, but weaker in Asia, led by Hong Kong. The Hang Seng registered its biggest daily fall since July 2015, down 5.6% following the news that Beijing was seeking to enhance national securing arrangements for the region; this measure would likely counter the kind of widespread protests that began last year.
Global investors are continuing to map the reopening of global economies to the overall risk narrative. The global stock markets are moving higher with positive changes in mobility data.
According to recent mobility data, the global economy has taken a giant step toward normality in the last week. Cross-country differences were reasonably stable though, and the leaderboard hasn't changed in most regions – except in G10. New Zealand has reopened with a bang and is now the most open economy in G10. This owes to both significant easing of official lockdown measures and normalization in actual activity as measured by phone mobility.
And consumer movement really does matter: the high-frequency data inputs around increased foot traffic (phone mobility), traffic congestion, and public transportation use have temporarily replaced PMIs and other such forward-looking metrics in the market code.
As with most Google Analytics features, analysis can be completed in external spreadsheets and databases, but the secret sauce lies in automating queries run. What was considered a tinfoil hat analysis not so long ago has now turned into a godsend for the market, which continues to trade the second derivative of this analysis by measuring how the rate of change of a Q (queries run) is itself changing.
There had been a slight thawing of the prior week's trade war tension – and then came Friday. From Monday to Thursday the HK market was stabilizing on the more optimistic run-up view to the NPC, then sentiment got zapped as outflow surged in property and high beta names. The HSI was a flood of selling straight into June despite not being the most 'liquid' contract yet. Up until Friday, the rise in open interest was being interpreted as investors bullishly dipped their toes back into the fray, but that view has quickly given way to the authoritarian clampdown reality check.
And while I'm not privy to any boardroom teleconference calls (although I wish I were a fly on the wall) I can't imaging C suite discussions around the HK bill are favorable. But will these discussions morph into a mass exit strategy from Hong Kong that threatens to leave the gateway to China a permanent banking ghost town? Only time will tell how this new bill will be interpreted.
"China is trying to defuse the matter by suggesting that the law does not affect the high degree of autonomy of Hong Kong, does not affect the rights and freedoms of Hong Kong residents, and does not affect the legitimate rights and interests of foreign investors in Hong Kong" (Chinese Foreign Minister Wang Yi.)
But if companies feel they can’t guarantee the safety and freedom of their foreign employees, one can only assume they’ll be relocated out of Hong Kong. After all, most jobs these days – other than client-facing activities that can remain on the ground and staffed by locals – are location agnostic due to internet technology, something the Covid-19 work-from-home environment has proven.
Currency markets saw a tranquil start to activity early on Monday as traders monitored more signs of economies reopening around the world against a deepening rift between the US and China. But as the dust settles over the Hong Kong agreement and if the currency market continues to normalize after the market has a good soak in the NPC's outpour, the EURUSD topside (EU Covid-19 rescue package) and USDCAD downside (higher oil prices) could be the truth-bearers for the US dollar direction into the summer.
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Sometimes you have to throw conventional wisdom out the door and just let the good times roll