Investors appear to be moving past the tough data coming out of China in hopes that the gov will deal with greater financial and real estate challenges. Their banking regulator said it would create a task force to look at risks at one large investment firm that missed payments on investment products sold to HNWI and companies. Plus, you’ve got major developer Country Garden on the precipice of default. While Chinese stocks are down, we’re not seeing impact abroad—which is probably wishful thinking.
I like this BBG chart that demonstrates how disconnected European equity valuations are from macro data.
Systematic investors are close to their max longs on equities. Short-covering has already occurred. Thus, if vol increases, expect a harder fall.
Bernstein’s Clarke increased his px target on Hyatt to $147 from $136, maintaining an Outperform. He ranks Hyatt top of the pack, even though he admits the sector is fully valued. He thinks Hyatt remains the fastest RevPAR growth business trading at an “unwarranted discount.” HSBC analyst Gupta decreased the px target on Illumina to $235 from $270 but maintained a Buy rating. Reasons? Challenging macro forces with biotech funding cuts and softness in its China life sciences business. Stifel’s Astrachan decreased his px target on Target to $160 from $175 but kept a Hold rating. The firm’s customer survey shows positive spending projections through mid-month, in fact accelerating from July, but he thinks that comps will be tough in the future as consumers pull back on discretionary spend.
Now that investors think rates will be high and sticky, they’re also driving up the USD to new highs against major currency peers. In fact, with the USD above 145 yen, BBG notes that it’s near a level that made the BOJ intervene last year to bound the move.
So, we’ll probably see folks who are short the USD cover more, if the pain continues for much longer. If growth or rates in the US stay high, then we’d expect the USD to remain strong. While they’re at their lowest level in 8 weeks, they remain pretty high.
BBG is out with a story on how the traditional rich folk (not billionaires but just mere millionaires) are feeling poor. These are folks making $175k/yr (top 10% of tax filers in the US). The article has a nifty tool that let’s you compare how rich/poor you’d feel if you moved to another area of the US.
Russia’s ruble is in rubble, beyond the psychologically key level of 100 to the USD for the 1st time since Mar 2022. Their central bank tried to stop the trend by halting FX purchases on the domestic market FOR THE REST OF 2023! Imagine that happening in the US. With lower exports and a shut-out from a lot of international financial markets, coupled with higher inflation, it’s not looking good.
BBG is out with an interesting story about P/E firms sitting on their portfolio companies, versus transaction-ing for exits. Potential sellers want to wait to get higher prices. Potential buyers want a deal because rates are high. Hence, the impasse. So, investors in the funds will be watching their IRR potentially creep down given the time drag. Unspent capital in the industry, per Preqin, is around $1.5 trillion. I had to write that out. With a T.
Zuck’s latest jab is probably meant to entice the rival. “If Elon ever gets serious about a real date and official event, he knows how to reach me. Otherwise time to move on.” Your turn, Musk.
