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TheBRRR’s Thoughts

GM. Evidence continues to mount that central banks and governments will be more supportive with liquidity than they’re leading on.

Two stories out of Asia highlight the case.

1) China’s secretive sovereign wealth funds are buying Chinese ETFs
2) Japan’s latest CPI report came in low - enabling them to keep stimulus flowing

The global liquidity backstop, in addition to incremental support domestically in an election year, should drive risk assets higher throughout the year. The US appears particularly strong at the moment, with the S&P500 hitting all-time highs this week.

One note on the crypto markets.

Grayscale-led Bitcoin sales continue to drag overall crypto markets lower in the post-ETF approval world. GBTC, which was converted from a trust to an ETF last week, carries a 1.5% annual fee while the rest of the ETFs are under 0.3%, leading to significant outflows that are not being absorbed well by the market.

The imbalance should slow down as we approach the end of the month.

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Macro News

Chinese Plunge Protection Team Steps In

WHAT HAPPENED:

• Market Intervention in China: China's state funds led by Central Huijin Investments, known as the Plunge Protection Team, aggressively bought billions in ETFs to prevent a further market crash this week.

• CSI 1000 Index Crisis Averted: The CSI 1000 index was close to triggering a massive sell-off due to snowball derivatives, but state intervention helped avoid this.

• Significant ETF Trading Volumes: Major ETFs like Huatai-Pinebridge CSI 300 saw their highest trading volumes since 2015, indicating heavy buying by state funds.

• Foreign Investor Activity: Despite the state's intervention, foreign investors continued to sell off mainland stocks, with a record sell-off in the previous session.

• Overall Market Performance: Chinese stock indices managed to close higher, with CSI 300 up by 1.4% and Hang Seng China Enterprises Index up by 0.8%.

WHY IT MATTERS:

• Market Stability Concerns: The Chinese government's intervention highlights the fragile state of the country's stock market and concerns about overall stability.

• Debt and Economic Policy Dilemma: China's high debt-to-GDP ratio complicates its economic policy options, limiting its ability to stimulate the economy without exacerbating debt concerns.

• Global Market Implications: China's market stability is crucial for global economic sentiment, given its significant role in the world economy.

The BRRR’s Take: The CCP is putting the bottom in in Chinese stocks (currently at 4-year lows). This injection is highly constructive for global equities.

Zerohedge

Macro News

Japan Inflation Cools, Allowing For Continued Stimulus

WHAT HAPPENED:

• Japan's Core Inflation Rate: In December, Japan's core inflation, which excludes fresh food but includes energy costs, rose 2.3% year-on-year, marking a deceleration from November's 2.5% increase.

• Energy and Food Price Dynamics: The slowdown in inflation was largely attributed to a 11.6% decrease in energy costs, influenced by last year's high base effect and government subsidies. Although food prices continued to rise, their pace moderated.

• Bank of Japan's (BOJ) Stance: The data suggests the BOJ might maintain ultra-low interest rates in its upcoming meeting. However, some analysts anticipate a possible exit from negative short-term interest rates around April.

WHY IT MATTERS:

• Monetary Policy Implications: The slowing core inflation takes some pressure off the BOJ to rapidly change its massive monetary stimulus policy.

• Market Expectations: Markets are closely watching for signs of when the BOJ might shift its policy, especially given the potential for rising wages to influence broader price increases.

• Wage-Inflation Dynamics: The possibility of a positive wage-inflation cycle, where wages and services prices rise together, is a key factor for Japan's economy moving away from its prolonged deflationary period.

Reuters

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The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.