Centerfin Collective Weekly

Weekly Update February 9, 2024

China situation continues to deteriorate, Layoffs continue, Treasury auctions go well

China situation continues to deteriorate

Going into the Chinese New Year, the local stock market continued to deteriorate, forcing the government to intervene. The Shanghai composite index traded down to begin the week, reaching levels not seen originally since 2006. After weeks of pressure and the recent order of liquidation for China’s second-largest property developer, Evergrande, the government was forced to intervene to reverse some of the stock market losses. It was reported Xi Jinping himeself met with stock market regulators this week to discuss options.

  • They used to say, “when China sneezes, the world catches a cold”
  • With the world’s second largest economy still recovering from extreme restrictions of the Covid-19 pandemic, the relationship seems to have shifted
  • As discussed often previously, the relationship between the West and East has been changing dramatically for the last several years
  • As China is still stuck in weak economic conditions, the US is economy continues to grow and the stock market hit all-time highs this week

Layoffs continue

We have seen steady state announcements of layoffs to begin 2024 across various industries. From big tech to media, to banking, companies have been announcing layoffs. This is unusual as the economy seems to be accelerating, and the stock market in the US is hitting all-time highs.

  • The total number of announced layoffs continue to pile up
  • This is somewhat surprising given the overall positive economic data
  • This could be due to companies holding off on layoffs last year given the tight labor market
  • Normally, this could signal a turning point, however, it could also be an aberration given the abnormal state of the economy post Covid lockdowns

Source: MacroEdgeRes

Treasury auctions go well

The markets seem to have shifted their focus to the results of the US treasury auctions as the current macro focus. Results this week showed there remains demand for even our longer-term bonds. This is a positive signal about the health of the bond market and the US ability to sustain debt financing its very large fiscal deficit.

  • Given the continued growth of debt in light of a massive fiscal deficit, the US market has been paying more attention to results of new debt issuance
  • Results this week showed the market is willing to accept our excessive borrowing needs to finance our spending
  • This helps keep our borrowing costs low, and is overall a positive for risk assets
  • We believe this can become one of the more important market signals in the near future

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