Safety in stocks but not in bonds
I’m sympathetic to the idea that equity bulls don’t want to take weekend risk around Evergrande.
China works on its own timelines but with the company already saying it won’t make a September interest payment, a broader default is looming on its $305B in obligations.
I’ve seen some compelling arguments for why that shouldn’t lead to contagion and you have to imagine that Wednesday’s PBOC meeting could include a cut in the LPR, so there’s a backstop there.
At the same time, $305B is a lot of money and talk of 1.5m people losing deposits on homes can’t be good for the Chinese property sector.
I’ve been worried about China for awhile and the timing is so tough. While the music is playing you gotta dance. The problem is that you don’t want to be the guy locked into the dancefloor for the weekend when the music stops on a weekend.
What doesn’t quite add up is fixed income. If it gets ugly in China the #1 asset you’d want to own is US Treasuries and those are selling off hard today. Some seem to think that’s Asian accounts raising domestic cash and that may be the case but not everything is adding up here.
Toss in quadruple witching and it’s a puzzle that can’t be solved.