Are you feeling chill in the air

The Fed, BoE, and BoJ rate decisions are out of the way now. The S&P500, bond yields, USD, JPY, Gold, and Bitcoin, etc. have already made their initial move. The market participants may now begin to focus on elections – state assembly elections in India and the US Presidential elections. Regardless of overwhelming evidence to suggest that these elections may not impact the markets beyond a few days, the narrative might keep the market participants busy and distracted in the next few weeks.

I find many events, besides rate cuts and elections, that are occurring on the sidelines that need to be noted by the investors. Considered individually, these events may not look like triggering a meaningful move in global markets. However, if we take a collective cognizance of these events, the probability of global market shock would certainly rise by a few points.

The following events, for example, have drawn my attention in the recent months.

Central banks loading on gold

Post the global financial crisis 2008-2009, the central banks have significantly increased their gold accumulation. In 2023, central banks added 1,037 tonnes of gold – the second highest annual purchase in history – following a record high of 1,082 tonnes in 2022. The trend is continuing in 2024 also. (see here)

The notable thing in this trend is the sharp rise in gold accumulation by the Russian and Chinese central banks. President Xi and President Putin, along with Iran and North Korea (CRIK) are seen as an informal anti-NATO alliance. (see here)

Biden provides fresh impetus to the Sino-US tariff war

The Biden administration has provided significant impetus to the Sino-US tariff war started by the Trump administration. Despite strong objections from the domestic industry, the US has not only retained the tariffs imposed on the Chinese imports by the Trump administration in 2018, but made some material additions to the list. The new tariff list includes a 100% duty on Chinese EVs, 50% on solar cells and 25% on steel, aluminum, EV batteries and key minerals.

Besides, the Biden administration announced new measures aimed at Chinese e-commerce platforms to minimize the low-value imports eligible for duty and tax exemptions. (See here)

Putin mediating thaw between India and China

The rhetorical aggression between China and India has decelerated materially in the recent weeks. It is reported that China is retracing from its advanced positions in the Indian territories and willing to disengage completely. Apparently, it has occurred after the recent visit of PM Modi to Russia and Ukraine. (see here) This is obviously an important geopolitical development after the coup in Bangladesh, allegedly with support of the US. (see here)

Hedge Fund piling on short positions

In the past few weeks hedge funds have been piling on their short positions. They have now been net sellers for the five consecutive weeks, not a normal situation when the benchmark indices are making all-time highs.

Chinese economy imploding, govt puts a tight leash on investment professionals

All the recent data about the Chinese economy indicates that the Chinese economy is slowing much faster than previously estimated. As per the current estimates, China is most likely to miss even a modest 5% growth target. (see here) By all indications the Japanification of the Chinese economy is happening against the wishes of all. The Chinese economy has been the engine pulling the global economy in the past two decades. If this engine falters, it cannot be good news for the global economy and therefore markets.

The Chinese authorities have been taking action against the entrepreneurs, like Jack Ma of Alibaba, failing to adhere to the strict regulatory norms. Recently, the authorities cracked down on financiers – impounding passports of 8700 investment bankers and restricting their overseas travel. (see here)

This could be seen by some as a precursor to a massive shift in the economic development followed in the past two decades. (see here)

Traders incurring losses despite market rally

On 12^th September 2024 (weekly F&O expiry day), many option traders in India experienced exceptional losses due to sharp surge in the benchmark indices in the last hour of trading. It happened again last Friday. This has happened when sharp underperformance of the broader markets and popular stocks is already bothering the non-institutional (retail) investors. In the technical analysis parlance, these are conspicuous signs of a large-scale distribution taking place. Empirical evidence suggests that this phase of the market is usually followed by a dull period in the market, marked by poor returns.

It's still the month of September and on my morning walks, I can feel the chill in the air. This is not usual weather in Delhi NCR. I am getting the same sense in markets. If you are also feeling this chilling sensation, please do share your views.