Quarter Earning Bell rung the markets to life AND More...

1. It is more than certain that the housing market in China has peaked. The aging population coupled with the stringent regulations on the housing loans have added frictions in maturing buying decisions. The Economist has been bearish on the Chinese economy for almost a decade. On the flip side, the property affordability index (Property Indices to Incomes ratios) hasn’t fallen yet.

2. The power story and the coal shortage is a politically driven gimmick. The coal import ban from Australia led to acute shortage of top quality coal. Furthermore, this is happening at a time when Chinese coal imports as a percentage of total coal consumption has been increasing. Now Indonesia is the primary source of foreign coal for China and this can be seen from the Coal index of Indonesia.

3. If I had to buy one stock market and not sell it for 10 years, that would be the Indian stock market. The Indian economy and bourses are all set to enter the economic boom phase as it had been during the 2003-10 period. So, now even tapering and rate tightening would not impede the investment cycle, and in fact push the economic growth to new highs.

4. With the strong recovery in the Indian industrial production, the oil imports have crossed all time highs this September at $17.4bn. This furthermore makes the import bills highly vulnerable to oil price dynamics and dollar appreciation.

5. German bund market has reverted back to pre pandemic levels and that makes us confident about our short position on the bunds. The rise in bond yields make bank stocks very attractive. This can be seen in the Euro Stoxx Bank Index performance.

6. Corporate earnings in the US look strong and now spreading across all sectors. earnings growth is due to the strong economic restart – and the realization of such strength was priced in by higher multiples last year as stocks surged back from the Covid-19 shock. But on the contrary, I think a lot of earnings spring back has happened and we might see some negative correction in the earnings in the coming quarters.

7. The U.S. economy grew by an annualized 2% in the third quarter – slower than the 6.7% expansion in Q2 and somewhat below expectations. This is due to the termination of the stimulus checks and thus the consequential impact on consumer spending.

8. Net exports in the US have nosedived to decade lows, which clearly shows the high dependence of the US on external growth stories. Exports add to the economy, while imports are leakages from the economy. Thus lower net exports is not a very good sign.

9. I think we should be strategically underweight nominal government bonds given their diminished ability to act as portfolio ballasts with yields near lower bounds. Rising debt levels may eventually pose risks to the low rate regime, rather than inflation linked bonds – particularly in the U.S. relative to the euro area on valuations.

10. Bank of Canada announced that it would end QE outright beginning November 1. In response, the Canada 2-year yield spiked by 21 basis points, to 1.08%, having more than doubled over the past four weeks. The 1-year yield spiked by 19 basis points today to 0.72%, having nearly tripled over the past five weeks.

11. Interesting Charts: