The Macro Brief: Global Liquidity Evaporates Increasing Risk For Investors
The divergence in the Hang Seng and SPX gives traders clues to China's woes.
Hong Kong's Hang Seng Index barely finished in the green following early losses and a 3% decline in the prior session.
I'll go into more detail about the importance of “liquid China,” or the Hang Seng this evening.
In part, it signifies the strength of the eurodollar system - or the real global reserve currency. When the eurodollar system is expanding then China's economy is expanding and vice-versa.
Well, as I've previous written and tweeted about in Jan. 2022, China was suffering as the eurodollar curve inverted a month prior.
This was BEFORE the so-called lockdowns. You can read up more on that here and here.
If we compare net global liquidity and the Hang Seng, and, then with the SPX you'll noticed a clear divergence which is misleading US investors severely.
As you can see, the Hang Seng trades within lockstep; and why wouldn't it?
Despite the hoopla over China's reopening, in February I said sell both Hong Kong and Chinese equities.
SPX and net global liquidity were largely joined at the hip until June.
There are two things to consider:
The rally in the US equity markets has a huge options component to it.
US becomes more attractive as the Chinese yuan continues to depreciate (broader risk-off sentiment).
Next, I'll go over liquidity in more detail and what it's signaling for the US dollar, credit and commodities for paid subscribers.
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