JASPER’S MARKET SQUAWK 24-10-2022

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JASPER'S MARKET SQUAWK 24-10-2022

Chinese stocks tumble to ’08 crisis lows

China’s Hang Seng fell as much as 5%, its lowest level since the financial crisis of 2008, despite GDP data coming out better than expected. Investors seem worried about Xi’s reappointment and the renewed propensity of centralised anti-market policies, with the recent lockdown in Guangzhou acting as proof.

Key factors for today:

• Hang Seng sinks following Guangzhou lockdown after Xi’s reappointment


• BoJo's exodus alleviates leadership contest concerns, somewhat supporting cable


• Italy's Meloni receives confidence vote, appoints por-EU Finance Minister


• Musk's Twitter acquisition halted as funding banks plan to hold debt

Hang Seng plunged 5% after CCP Congress

China released delayed economic data after the CCP Congress, showing GDP grew faster than anticipated, but retail sales missed consensus. GDP rose 3.9% YoY in Q3, higher than the 3.4% forecast, and Retail Sales slumped from 5.4% to 2.5%. The consensus estimate was 3.3%, suggesting China’s policy on Covid weighs on growth.

President Xi was sworn in for a third term, and the Politburo was reorganized. Pro-markets Premier Li was not reappointed and was replaced with Li Qiang, who oversaw lockdowns in Shanghai. Guangzhou entered a lockdown, suggesting that the zero-Covid policy would continue.

Boris Johnson steps out of race to No. 10

After obtaining the required votes to stand for the leadership contest, Johnson said he wouldn’t join the contest, citing a lack of unity in the party. Sunak takes the lead in preferences, with only Penny Mordaunt running against him after declaring her candidacy on Sunday. The pound spiked to 1.1400 against the dollar as concerns subsided following BoJo's announcement on Sunday, only to pull back to 1.1300 again, entering a range.

New Italian PM appoints Pro-EU Finance Minister

Georgia Meloni was sworn in as PM along with her Cabinet on Saturday and spoke with Macron. Italy’s Government to become official following formal confidence vote on Wednesday. Meloni appointed Giancarlo Giorgetti as Finance Minister; he had previously been Minister for Economic Development under Conte and is seen as generally favourable to the EU. Euro has an attempt at 0.9900, but bulls were swift in taking profits.

Twitter takeover funding

Reportedly, banks backing Musk’s takeover of Twitter have decided to hold the debt rather than syndicate it, possibly to sell it later in the year. Banks include Morgan Stanley, Bank of America and Barclays, with $13B commitments. Citing a loss of appetite in the bond market, the banks could face substantial losses if they tried selling the deal now. Twitter stock prices must retain the $50 support; otherwise, risk a selloff towards $43.

Movers and shakers

• LATAM Airlines (LTM) +24.5% Air Lease announces long-term placements for new long-range aircraft for the company


• Schlumberger (SLB) +10.3% following earnings and boosts outlook for the next quarter


• Tesla (TSLA) +3.5% reportedly to cut prices for Models X and Y in China


• SVB Financial (SIVB) – 23.9% following earnings that disappointed on the top line but beat on the bottom. However, it provided a very downbeat outlook, and analysts cut their projections for the firm


• Freeport-McMoRan (FCX) +10% in continuation after earnings, seeing an improving outlook in the commodities sector

On the docket

• S&P Global Manufacturing and Services PMIs from France, Germany, Euro Area, UK and US


• Chicago Fed National Activity Index

 

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