China’s “targeted” clampdown acquires new target

China’s definition of targeted moves and the financial markets definition of what it thinks is China’s definition continues to be different. That is probably because investors put lower stock prices, FOMO, and buy-the-dip into their equation, while the Chinese government does not. Today, China’s Securities Times fired another salvo at the online gaming industry, citing teenage addiction and favourable tax treatment. I actually don’t disagree; I’d rather the kids read books, even if it is online.


Now admittedly, China’s online gaming industry is part of the broader tech space, but this is the second government mouthpiece to take a shot at the sector this week, and you ignore the non-too subtle warning at your perils. From IPOs to tech to after school education, the list of “targets” seems to get longer every week. Unsurprisingly, China equities have headed south today, bucking the trend in Asia. It seems we still have some way to go before the price discount on China equities offsets the regulatory risk from China’s government.


Elsewhere, the US saw some decent whipsaw price action overnight. The ADP Employment number missed severely, coming in at 330,000, less than half the expected result. That saw US bonds rally, the US dollar fall, stocks rise and gold fall. However, ISM Non-Manufacturing and its sub-indices, such as prices, new orders, and employment, impressively outperformed. That turned markets around, and it was left to US Federal Reserve Vice-Chairman Richard Clarida to administer the coup de gras.


Mr Clarida said the Fed would signal tapering before the end of the year, taper right through 2022, and then start hiking interest rates in 2023. Not exactly a surprise but timing is everything. Equities fell, the US dollar rose along with US bond yields and reversed all of its impressive intra-day gains, while oil also fell. More on both later.


In the background, markets are increasing, humming, “Delta, Dawn, what’s that virus you got on?” The list is seemingly lengthening every day of countries wilting under the latest variant. Australia’s New South Wales has extended lockdowns to Newcastle and the Hunter Valley. Japan’s cases are exploding. Now that Indonesia has increased testing again, cases are rising once again here. The critical regions to watch, though, in my mind, are the big three of the United States, Europe and China. Most particularly China, where a seriously widening outbreak would have negative repercussions for the rest of Asia and require a reassessment of the global recovery.


The appetite for lockdowns in the US and Europe being precisely zero now. One thing is for sure, the global recovery will be one of haves and have nots and will be uneven. And if the US and Europe/UK go down the booster shot route, you can pencil in an even longer recovery time scale for the developing world. In the shorter term, though, China is the one to watch.


Asia’s calendar today contains a few snippets. Australia’s Balance of Trade came in at an impressive AUD 10.50 billion, with the commodity machine firing on all cylinders. That has been enough to balance out escalating virus nerves in the lucky country and keep Australian equities marginally in the green. Philippine’s Inflation eased to 4.0%, to the relief of the central bank, which can keep monetary policy supportive going forward while putting stagflation thoughts to bed for now.


Thailand inflation will be equally benign at around 1.0% later today, with stuttering exports and domestic consumption being crushed by its virus situation. The Bank of Thailand will likely remain at record low rates well into 2022, and the Thai baht will continue to be a regional underperformer. Singapore’s Retail Sales have probably slumped under its virus lockdowns. However, DBS has followed OCBC and UOB yesterday and delivered a record result for H2, limiting any fallout in equity markets. Singapore big banking remains one of my favourite Asia recovery plays.


The Bank of England will announce its latest policy decision later today. Increasing delta-variant cases in the UK and a wait-and-see approach to its reopening should ensure the BOE continues its QE programme with rates unchanged. I also doubt any new signals will emerge as to tapering or future rate hikes. US Initial Jobless Claims will be of passing interest, with a print well north of 400,00o likely to spur another drop in US bond yields again, and probably the US dollar.


Overall, I expect markets across asset classes to enter a holding pattern today, with only headline risk moving volatility intra-day, as the street awaits the week’s main event tomorrow, the US Non-Farm Payrolls.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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