October 17, 2021

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Energy prices soar, Bitcoin holds ground amid Chinese crackdown

Most bad news come from China these days. The Evergrande debt crisis, the Chinese energy crackdown on missed targets and the ban on cryptocurrencies have been shaking the markets, along with Federal Reserve’s (Fed) more hawkish policy stance last week, and not only on its QE taper front but also regarding the interest rates. 

The week kicked off on quite a mixed sentiment in Asia. Australian stocks were mostly in the green, Hang Seng eked out some small gains despite the ongoing Evergrande headache, while Shanghai’s Composite dived 1.30%, hinting that one place to avoid again this week, is Chinese equities. First, even an eventual Evergrande bankruptcy wouldn’t trigger a systemic crisis, it will mean that Chinese companies will have harder time getting fresh credit. And because the credit growth has been one of the major pillars of the Chinese growth over the past decade, and because the Chinese growth fuels the global growth, it’s a major worry for the global growth as well.  

Then, another major pillar of the Chinese growth, energy, is also in crisis with headlines pointing that half of China’s regions missed their energy consumption targets, which now results in factories being ordered to curb production or even shut down to meet Beijing’s green goals. That’s good news for the planet, but bad news for the Chinese economic activity, obviously.  

Energy prices are up

Natural gas futures rebound fast from last week’s dip and should continue rising as the winter approaches.  

US crude traded it above the $75 per barrel in Asia for the first time since July. The rally is gaining momentum and we may well see the bulls try an attempt on the $80 per barrel in the coming weeks, but fast rising oil prices also mean a further pressure on inflation, and a further pressure on inflation means tighter central bank policies and less support to the economic activity, which, in return, would mean a slower demand. Therefore, the rally should see a limited upside. 

Equities  

Despite discouraging news on the wire, US and European futures traded mostly in the positive hinting at some more consolidation in US equities at the start of the week, especially with energy stocks that should lead. 

Firm energy prices and cheap pound should help FTSE 100 consolidate above the 7000p mark. 

German election  

As predicted by the latest poll results, Germany’s SPD party is ahead of outgoing Angela Merkel’s Christian Democrats. And the Greens came third. Now an SPD-led coalition in Germany is quite bearish for the DAX as the center-left party is in favour of increasing minimum wages, raising taxes, and supporting ‘labour’ at the expense of ‘capital’, the kind of changes that would weigh on company earnings, and their share prices. But obviously, what could be done will also depend on coalition partners and changes won’t happen overnight. There is no particular stress on DAX futures this morning, which will likely continue recovering last week’s losses. But it’s good to keep in mind that the hawkish shift in the ECB’s policy due to higher inflation and the new German government could slow down the DAX rally compared to what it would have been otherwise. We still have a couple of weeks and months of uncertainty that could dent appetite in German stocks, but the DAX will probably not dive alone, the overall trend will depend on the overall market sentiment.

China bans cryptocurrencies, again

Now back to Chinese news, the cryptocurrencies were again hit by the Chinese crackdown rules. All crypto transactions and mining activities are now forbidden in China. All crypto-related activities were already forbidden in China, but they were still happening because Chinese mainlanders always found ways to go around the regulations. But this time, it looks like a loophole which allowed citizens to trade cryptocurrencies was closed and the impact is real; crypto exchanges like Binance are no longer accepting new accounts from mainland China and will be gradually closing the Chinese accounts, as no one wants to take the risk of having Beijing on its shoulders. The impact of the latest Chinese news on Bitcoin’s price was significant but not dramatic as the $40K support held well during the kneejerk drop and during the weekend. But Bitcoin is still in the bearish consolidation zone and should make a move above the $44/45K mark to step back to the positive trend, otherwise we may see the price of a coin fluctuating between 40 and 45K range without too much excitement for traders.

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