A rising Fed Funds rate will depress the RMB, further propelling our Hong Kong stock market.

HONG KONG STOCKS

Hong Kong has ended the month of August as Asia’s best performing stock market. The Hang Seng index fell 0.2% to 22,976 points yesterday, but registered a 5% gain for the month of August and is close to a 10-month high. Earlier this week the index rose 20% from its February low, the technical definition of a bull market. Mainland Chinese investors have been pouring into Hong Kong stocks through the Shanghai stock connect scheme attracted by some high dividend yields here in Hong Kong. And Hong Kong home prices were stronger in July rising by 1.9% compared to a 0.2% rise in June. Hong Kong holds legislative elections this Sunday.

1.  China’s Economic Clock®. Hong Kong is the water skier off the back of the Chinese speed boat. With China’s Economic Time® looking a little better, so are we.

1.  In China, I sense that STABILISATION is setting in. Witness

i.    The more stable copper price

                                       ii.    The more stable Maersk shipping share price

2.  Better feel-good factor. Just walking around Central, Hong Kong’s “feel good” factor is rising: less frustrated honking, fuller shopping bags, more tourists lurking about.

3.  Market drivers.No doubt, the double header of a stabilising China AND an improving property market here have helped – in true HK style.  Add to this plenty of mainland money pouring in, fuelled in part by a concern of an ever-weakening RMB…

4.  LegCo elections will bring disruption to markets, what with more radicals raising a ruckus on Sunday.

UPCOMING ECONOMIC DATA

Attention on the economic front turns to a raft of manufacturing PMI data from across the region later today including the Caixin Purchasing Managers Index in China. An early gauge of China’s factories in August showed manufacturing slumped to its lowest level since 2009. In the US, tomorrow’s crucial non-farm payrolls report is the last major piece of economic data before the Fed meets later this month to discuss interest rates. In a preview of the jobs number the private ADP employment report released overnight showed the private sector added more jobs than forecast in August. Next week the European central bank meets to discuss monetary policy across the Eurozone. Overnight data from the Eurozone showed inflation in the region unchanged at 0.2% in July but well below the ECB’s target of 2%. And starting this weekend the first ever G20 leaders’ summit to be hosted in China kicks off in the city of Hangzhou.

1.  Global Economic Time® is stabilising off the back of weak data for the past year / “how much lower can it go?”:

a.  More stable copper price

b.  More stable Maersk shipping price

2.  China’s PMI will show weaker results. But look behind the headline!

a.  This is due to inventory drawdowns, NOT because of slumping demand!

b.  Indeed,her Economic Time® is looking marginally better off the back of monetary easing and the strong likelihood of fiscal stimulus.

3.  US payrolls data probably will come in a little stronger  than expected

a.  these datacontinue improving!

b.  This is what you would expect :America’s Economic Clock® is telling us that there is an excess demand for goods that keeps intensifying.

4.  The European Central Bank must  keep easing: politicians certainly won’t make any business-friendly changes in our beloved welfare museum, aka Europe. Quite the contrary!

a.  Indeed, recent tax gyrations on the Continent suggest that that OCTOPUS BRUSSELS wants to take over national tax policies now: how awful!

                                         i.    Why should businesses invest in Europe, now that Brussels’ power-grab is threatening to disrupt the Continent’s national tax sovereignty?

5.  G20 in Hangzhou.This represents China’s first time at “top table”, so she will be interested in making this G20 a success.

a.  The RMB

i.    No reason for the RMB to plunge shortly after the G20 ends: it has been skidding for some months, and will keep doing so

                                       ii.    It will keep skidding because Mr Xi wants more imported inflation via a weaker RMB, and the myth of stronger RMB-denominated exports. Even if I pointed out the fallacy of this argument in my book, Trade Myths: perceptions are reality when it comes to market emotion!

                                      iii.    Meanwhile, ultimately, the Americans – via the Fed – want higher interest rates; that American-led initiative will depress the RMB further!

Stronger HK stock market. But the clearest  impact of a weaker RMB: ever more inflows in to our beloved HK stock market: RMB punters want to swim around a continued RMB depreciation!