I’m hearing the name Tina a lot these days and frankly, I can’t disagree with it. Tina stands for “There Is No Alternative” and is mostly used these days to justify the relentless equity rally. With interest rates at rock bottom globally and zero in much of it, even a 2.0% yield on a half-decent stock looks attractive. In a world where the Italian and Greek governments can fund at close to zero per cent, and you have to pay the Germans for the right to lend them money, Tina looks even more attractive. No red carpet awards designer dress required.
China markets have taken Tina to heart today, sending Evergrande’s shares 22.0% higher intra-day so far after Hong Kong, where they are listed, returned from holiday. Vacuous promises from the Evergrande Chairman that obligations home buyers and wealth management product owners would be met, along with being able to pay a local coupon payment today, have markets in a worst is over frenzy. China investors seem to have taken Tina to heart although Tina Evergrande does sound like the stage name of a Eurovision Song Contest contestant, the sacred peak of Euro musical talent.
A story posted by www.asiamarkets.com yesterday said that the China government is getting ready to take Evergrande over and split it into three separate companies to be folded into the bottomless maws of state-owned enterprises. That was apparently good news; certainly, mainland China and US markets thought so. I’m pretty sure though that Tina Evergrande holders would be left dressed in rags, making today’s price action even more irrational. Nor is there any word yet on whether Evergrande intends to pay the coupon due today on its offshore US dollar bonds. It has 30 days to do so before being labelled a defaulter. The Eurovision song contest is often controversial, and I suspect Tina Evergrande will be just as much. I note that major shareholders are dumping their holdings into Tina Evergrande’s rally today, so perhaps holding off on voting for her song, a better contestant will surely follow.
Speaking of Tina, we saw a similar effort in New York overnight. The FOMC meeting was interesting in that it signalled that a taper was almost locked and loaded to start by the end of the year. Perhaps more intriguing was the Fed dot plot. Half of the 18 committee members now have their first rate hike dot in 2022, and if employment accelerates along with inflation, more may join them. The reaction was what I expected though, such is life as a pilot pish in the world’s capital markets. US yields stayed pretty much unmoved as expected. The US dollar rose which I did expect. But equity markets in the US rallied strongly. Not what I expected. I suspect Tina belted out a top-ten chorus after US yields stayed put and the encore was a diminishing of Evergrande nerves as outlined above. Tina may never win the Eurovision song contest, but until the cold reality of the Fed taper hits home, she is still going to sell a lot of records.
Markets in Asia have shrugged off Fitch’s downgrade of China growth today, preferring Moody’s narrative that China will permit faster credit in the second half of 2021, even though we are already halfway through it. Evergrande resolution hopes are also driving positive sentiment across equities and commodities where the dip-buyers were already out in force yesterday.
Looking ahead, we have more central banks to come today in a busy week for the masters of monetary policy. Norway will almost certainly hike rates today, the first G-10 central bank to do so. With oil and gas prices firm to stratospheric, it’s hard to construct a bearish case for the Norwegian Krone at the moment. The Philippines will ignore above-target inflation once again and leave rates unchanged at 2.0%. ASEAN monetary policy is entirely focused on economic recovery, inflation be damned. Brazil hiked by 100 bps overnight, but Turkey will remain on hold today, lest another central bank governor joins the unemployment queue. The Bank of England will also remain on hold with some tail risk that they may signal more clearly, a tightening path. With gas prices wreaking havoc in Britain and not enough wind in the North Sea (who would have thought) to fill the energy gap, the BOE will probably sit on its hands.