Crypto Futures ETFs Raise Over $73 Million Ahead of Hong Kong Launch (Image: Shutterstock)
Hong Kong’s first crypto-based exchange-traded funds (ETFs) have attracted more than $73 million ahead of their debut on the region’s stock exchange. The launch of the two ETFs tracking U.S.-listed cryptocurrency futures comes despite the industry’s current problems.
Crypto Futures ETFs Raise Over $73 Million Ahead of Hong Kong Launch (Image: Shutterstock)
Hong Kong Debuts Bitcoin and Ether Futures ETF in Midst of Crypto Winter
Two ETFs tracking crypto futures raised a total of $73.6 million ahead of their stock exchange debut in Hong Kong on Friday, with the largest raising $53.9 million, according to Reuters. The news agency noted that the launch is a challenge to the ongoing turmoil in the sector.
The funds, offered by CSOP Asset Management, invest in bitcoin (BTC) and ether (ETH) futures listed on the CME exchange in the United States, the only crypto assets allowed by the Hong Kong Securities and Futures Commission (SFC) at this time. Commenting on the development, Yi Wang, head of quantitative investment at CSOP, stated:
“After the recent liquidity issues affecting some of the crypto platforms, our two crypto futures ETFs demonstrate that Hong Kong remains open-minded in the development of virtual assets.”
This year’s crypto market recession led to a significant drop in the prices of major cryptocurrencies with the largest coin by the cap, BTC, losing more than 70% of its value from its all-time high recorded just over a year ago.
The drop in rates was accompanied by a series of industry failures, the latest of which was the collapse of FTX, a leading cryptocurrency exchange with global reach, which filed for bankruptcy in mid-November amid liquidity problems.
Weeks before its collapse, the SFC announced in October its intentions to launch a consultation on whether to allow retail investors to trade cryptocurrencies and ETFs. The watchdog’s initial proposal was to limit participation to professional investors only.
Then, in November, the Commission’s deputy executive director, Julia Leung, was quoted as saying that the SFC is “actively seeking” to establish a regulatory framework that allows the trading of exchange-traded funds for crypto futures.
“As ETFs do not invest in physical bitcoins and are traded on regulated exchanges in the United States and Hong Kong, there are more regulatory safeguards for investors compared to tokens traded on unregulated platforms,” Yi Wang explained now.
Apple Looks Beyond China's 'iPhone Factory' as Flirtation Sour (Image: Mike Segar/Reuters)
The tech giant is trying to redirect supply chains to India and Vietnam amid fears of over-reliance on China.
Apple Looks Beyond China’s ‘iPhone Factory’ as Flirtation Sour (Image: Mike Segar/Reuters)
Taipei, Taiwan – Scenes of chaos erupted at Apple supplier Foxconn’s mega factory in Zhengzhou, China, last month as workers, angered by COVID-19 quarantine and unpaid wages, scuffled with security personnel.
The unprecedented protests in “iPhone City” have caused significant delays for the latest iPhone models at the end of the year, Apple’s busiest sales season, putting its 14-quarter growth streak at risk. For Apple, which produces about 90 percent of its products in China, there is no easy remedy.
“This can’t be fixed in the short term, you can’t build iPhone cities so easily in other parts of Asia,” Shehzad Qazi, managing director of consultancy China Beige Book, told Al Jazeera.
“The supply chains of companies like Apple are incredibly vulnerable because they are concentrated almost exclusively within China,” Qazi added.
The crisis has underscored the rising costs of operating under China’s “zero Covid” strategy, which Beijing is struggling to undo after nearly three years of blockades and border controls, and added to the tech giant’s urgency to redirect its supply chains.
Apple is accelerating plans to have more of its new products manufactured elsewhere, especially in Vietnam and India, the Wall Street Journal reported earlier this month.
In May, Chief Executive Tim Cook, who cultivated friendly ties with Beijing by agreeing to remove politically sensitive apps and store Chinese user data within reach of local authorities, entertained Vietnam’s Prime Minister Pham Minh Chinh on the Apple Park campus in Cupertino, California.
Apple did not respond to Al Jazeera’s request for comment.
Workers at Apple supplier Foxconn’s mega factory in Zhengzhou clashed with security personnel during protests over COVID-19 protocols and wages (Image: Reuters)
China’s dominant position in Apple’s supply chain has gradually declined in recent years. Until 2019, China was the primary location for about 44-47 percent of Apple’s supplier production sites. China’s share fell to 41 percent in 2020 and then to 36 percent in 2021.
JPMorgan has estimated that Apple could manufacture 25 percent of all iPhones in India by 2025.
The trend has drawn suggestions that Apple’s investment in China may have peaked. However, despite changes in production, Apple’s deep-seated presence in the country, where at least 95 percent of all iPhone manufacturing still occurs, is likely to make diversification challenging.
“Apple is not leaving China,” a former Apple executive who worked in China told Al Jazeera on condition of anonymity.
China has been a key source of the company’s profitability, the former executive said, with the country’s labor market optimized to meet the peaks and troughs of Apple’s seasonal production cycle.
China, for example, facilitates Apple’s on-demand access to a vast group of migrant workers, allowing assembly lines to increase up to 1 million workers before the launch of a new iPhone and shrink to a fraction of that during quieter periods.
“This doesn’t exist in India and Vietnam probably doesn’t have the population needed for Apple’s scale,” the former executive said.
China’s industrial groups also benefit the company, he added. Many major suppliers are willing to work for less when they partner with Apple, so they can learn from their supply chain prowess and, in turn, win more contracts with Chinese brands to reflect Apple’s success.
“Apple’s business model is to force suppliers to compete with each other to avoid relying too heavily on a single supplier,” he said.
Apple seems to be leaning more toward that strategy to spread supply chain risks.
In addition to diversifying into Vietnam and India, Apple also plans to hire a wider cohort of suppliers in China. The reason is that choosing more winners from the pool of competing companies will stop the emergence of single points of failure.
Compounding the headaches of Beijing’s COVID problems are Washington’s new restrictions preventing U.S. companies from doing business with the most innovative companies in China’s tech ecosystem.
In October, Apple canceled its contract with top Chinese memory chip maker Yangtze Memory Technologies after the company was blacklisted as part of U.S. President Joe Biden’s growing campaign to hamper China’s tech sector amid alleged national security concerns. Apple had initially planned for the Chinese firm to eventually supply up to 40 percent of the transistors needed in all iPhone models.
This leaves Apple with little choice but to deepen its reliance on the U.S.-led supply chain. Apple has since turned to South Korean rival Samsung for the NAND flash memory it hoped the Yangtze would provide, DigiTimes reported last month.
Meanwhile, the company is poised to increase its reliance on Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest maker of advanced chips. Apple confirmed this month that it would use the Taiwanese chipmaker’s four-nanometer and three-nanometer chip manufacturing processes for its custom A- and M-series chips.
Geopolitical tensions over Taiwan’s self-rule, which Beijing claims as its territory that must be “reunified” by force if necessary, add to the complicated combination of factors influencing Apple’s prospects for China. While Washington does not officially recognize Taipei, Biden has repeatedly indicated that he would commit U.S. forces to defend the island in the event of a Chinese invasion.
After enjoying years of stability between the United States and China, Apple must now navigate intensifying geopolitical competition between the world’s two largest economies that includes one of the most dangerous flashpoints.
“The possibility that China could invade Taiwan rings alarm bells in Cupertino and Washington,” Philip Elmer-DeWitt, a veteran technology journalist who covered Apple for nearly four decades and now runs the online publication Apple 3.0, told Al Jazeera.
“Keep in mind that both Tim Cook and Joe Biden showed up in Arizona for the start of new US-based TSMC factories,” Elmer-DeWitt added, referring to a recent event in which TSMC announced it would increase its investment for U.S.-based semiconductor plants from $12 billion to $40 billion.
Meanwhile, uncertainty persists about exactly how and how quickly China will emerge from “zero Covid”. Although Beijing has lifted some of its most draconian restrictions in recent weeks, restrictions such as quarantine for international travel remain, while the rapid spread of the virus through the population has increased the possibility of significant disruption and death.
“Investors need to understand that the end of zero COVID will be a process, not a one-time event,” Qazi said, adding that restrictions that have been lifted could be reimposed until enough of the population has been inoculated with mRNA vaccines.
“China has become an increasingly complicated place for foreign companies, especially American ones, to operate,” Qazi said. “This means that Western companies and Western countries will feel a huge impact of China’s social and political policies.”
Irish Soldier Killed After UN Convoy Attack in Lebanon (Image: Aziz Taher/Reuters)
The Irish soldier was serving on a peacekeeping mission when the convoy was attacked with small arms.
Irish Soldier Killed After UN Convoy Attack in Lebanon (Image: Aziz Taher/Reuters)
An Irish soldier has been killed on a United Nations peacekeeping mission after a convoy of two armoured utility vehicles carrying eight people traveling to Beirut came under attack with small arms, the Irish defense forces said in a statement.
Another member of the United Nations Interim Forces in Lebanon (UNIFIL) is in serious condition after undergoing surgery following Wednesday night’s incident, the statement said. Two other soldiers are being treated for minor injuries.
“It is with deep regret that Óglaigh na hÉireann (the Irish defense forces) can confirm the death of one of our peacekeepers in a serious incident in Lebanon last night,” the defense forces said.
The reason behind the attack is unclear.
Irish Defense Minister Simon Coveney, who is in New York for a UN Security Council meeting, said he will meet UN Secretary-General António Guterres later on Thursday to discuss the incident.
“As a people, we are proud of our uninterrupted record of peacekeeping with the United Nations. However, we must never forget the dangers that come with this work,” Irish President Michael D. Higgins said in a statement.
UNIFIL was established in 1978 to oversee the Israeli withdrawal from Lebanon during the Lebanese civil war and the Israeli invasion of Lebanon.
It is comprised of more than 10,000 people from various countries around the world, led by Indonesia, India, and Italy.
Mobile Payments Outperform Debit Cards in Argentina
Mobile payments are thriving in Argentina, leaving behind other traditional payment methods, including credit and debit cards. According to the central bank’s monthly report on retail payments, this type of payment has thrived, accounting for 60% of payment transactions made, while plastic-based means of payment have stagnated, registering a drop in usage.
Mobile Payments Outperform Debit Cards in Argentina
Mobile Payments Keep Growing in Argentina
Contactless electronic payments have thrived in several Latam countries, given the penetration of mobile cell phones in the area. The latest monthly report on retail payments issued by Argentina’s Central Bank has found that mobile payments are thriving in the country, leaving legacy means of payment behind.
According to the report, mobile devices are being leveraged more to make payments due to the rise of banking apps and mobile wallets. In October alone, 162 million of these transactions were made, registering an increase of 7.1% compared to the transactions carried out during September. The number doubles the number of transactions made during October 2021.
Payments made through these apps account for 60% of the total number of payments made, an increase from 51% in December 2021. By comparison, payments made with debit cards have stagnated, with 66.45 million transactions made in September 2022, falling 9.35% compared to the number of transactions made in July.
Digitization of payments and QR payments
The digitization of the payments landscape in Argentina has progressed steadily since the launch of Transfers 3.0, an open payments program that implemented interoperable QR payments, allowing institutions other than private banks to offer payment services.
The report also shows a sustained increase in QR payments, recording more than 5 million payments made with this tool in October. This represents an increase compared to the numbers corresponding to September when 3.15 million payments were made using QR, which was considered a record at the time.
Bitso, a Latam-based exchange, was one of the first cryptocurrency exchanges to allow users to make payments directly from their wallets, leveraging this technology in September.
Biggest Merger Will Rattle India's Debt Market as Top Seller Exits
HDFC is one of India’s leading borrowers in the rupee bond market
Other mortgage lenders may have access to a larger pool of funds
Biggest Merger Will Rattle India’s Debt Market as Top Seller Exits
The biggest merger in India’s history is likely to take one of its major issuers away from the rupee bond market, an absence that may weigh on debt sales and deal fees for banks.
The consolidation of Housing Development Finance Corp. and HDFC Bank Ltd. will create a financial services giant of more than $200 billion, and the parent will be able to tap into the bank’s deposits to grow, rather than accumulate more debt. That’s not all bad for India’s bond world, as the hole created by the shadow lender may allow new borrowers to sell notes, helping India deepen its debt market.
The shadow lender is India’s biggest bond seller in 2022, and its issuance accounted for 7.7% of the country’s total issuance volume this year, more than an average of about 6% over the past 10 years, data compiled by Bloomberg show. The merged entity will be a bank and is likely to offer notes when needed to increase its capital buffers and finance infrastructure projects.
“HDFC’s exit will initially affect overall sales volume next year,” said Jayen Shah, founder of Mavuca Capital Advisors Pvt., a fintech investment banking firm. “I expect many first-time issuers, state-owned and private companies to turn to the bond market next year as yields stabilize, which may gradually fill the gap.”
The merger, which is expected to conclude in the second quarter of 2023, will give HDFC access to 16.7 trillion rupees ($202 billion) of funds comprising the bank’s so-called low-cost checking and savings account deposits and term deposits. That will allow it to continue expanding its assets, which stood at Rs 6.9 trillion at the end of September.
The exit of a debt issuer of that size risks hurting the commission income of the bankers who have arranged HDFC’s various offerings. In recent years, Axis Bank Ltd. and ICICI Bank Ltd. have overseen most of those sales, data compiled by Bloomberg show.
For HDFC’s competitors, however, the company’s exit can be positive in terms of fundraising. “HDFC’s exit from the bond market would benefit its peers as it will give them access to a larger pool of credit,” Shah de Mavuca said. “That, in turn, will reduce the financing costs of other, higher-rated housing finance companies.”
Portugal's Ronaldo Says His World Cup Dream is 'Over'
“The dream was beautiful while it lasted,” Cristiano Ronaldo wrote in a social media post that could be a harbinger of his retirement from the Portugal team.
Portugal’s Ronaldo Says His World Cup Dream is ‘Over’ (Image: AP Photo/Petr David Josek)
Cristiano Ronaldo says his dream of winning a World Cup for Portugal is “over”, a day after his team’s crushing quarter-final loss to Morocco.
In an emotional message to fans on his Instagram social media account on Sunday, the Portuguese captain, who sidestepped the issue of his long-awaited retirement, acknowledged that his elusive quest for a World Cup title was over after 19 years.
Speaking for the first time since Portugal was eliminated by Morocco, a defiant Ronaldo said he had “fought hard” for his country in the tournament.
“Winning a World Cup for Portugal was the biggest and most ambitious dream of my career,” Ronaldo wrote.
The post was accompanied by a photo showing a dejected Ronaldo leaving the field after Morocco’s surprise and historic victory for an African team.
“There is no point in reacting rashly,” the five-time Ballon d’Or winner added. “I just want everyone to know that a lot has been said, a lot has been written, a lot has been speculated, but my dedication to Portugal has never wavered for an instant.”
Before the defeat, Ronaldo had made history in Qatar by becoming the only male player to score in five separate World Cups after scoring Portugal’s first goal in their first 3-2 win over Ghana.
“In my five World Cup appearances over 16 years, always playing alongside great players and supported by millions of Portuguese, I have given everything,” Ronaldo said. “I left everything I had on the field. I will never back down from a battle and I have never given up on that dream.”
But, he added, “Unfortunately, that dream ended yesterday.”
Ronaldo has not commented specifically on his future, but the 37-year-old is expected to retire from international football after Qatar, the fifth World Cup he had competed in.
Controversy had swirled around the Portuguese captain in recent matches after the team’s coach, Fernando Santos, opted to bench Ronaldo in Portugal’s 6-1 thrashing of Switzerland, apparently after he reacted angrily as he was substituted against South Korea during the tournament’s group stage.
Reports later circulated that the legendary soccer star had threatened to leave the Seleção das Quinas amid his short run in the knockout round in Qatar. Portugal eventually denied those reports.
On Saturday, Santos again benched Ronaldo during the match against Morocco and began his replacement, 21-year-old Goncalo Ramos, who scored three goals in the clash with Switzerland. Ronaldo was substituted in the second half of the match.
“I’ve always been a [Portuguese] more fighting for everyone’s goal,” Ronaldo said in his Instagram post.
“I would never turn my back on my teammates or my country.”
Ronaldo said he planned now to “let everyone draw their conclusions.”
He concluded his post by thanking Portugal and the host nation Qatar.
“For now. Not much more to say. Thank you, Portugal. Thank you, Qatar. The dream was beautiful while it lasted.”
Ronaldo leaves Qatar without a club team as well.
He was left by Manchester United with “immediate effect” after conducting an interview on the eve of the World Cup, in which he sharply criticised manager Erik ten Hag.
Portugal, which has never won a World Cup, must now set its sights on the 2024 European Championship in Germany, the next big football tournament on the international circuit.
However, there was no lost love between the Moroccan fans and Ronaldo.
“Where is Cristiano Ronaldo? Do you know where? In my pocket,” a young Moroccan fan told Al Jazeera after the team’s win over Portugal.
American rapper French Montana, who has Moroccan roots, also trolled Ronaldo on social media over the weekend.
“Ronaldo you had your time g… it’s time for Morocco,” the Bronx rapper wrote Saturday.
Morocco’s place in the semifinals makes them the first African and Arab teams to reach the quarterfinals at a World Cup.
On Wednesday, Morocco will face reigning World Cup champions France in the semifinal round of the tournament at Al Bayt Stadium.
Argentina Organizes National Blockchain Committee to Implement State-Level Strategy
The government of Argentina has appointed a national blockchain committee to set the guidelines for a state-level blockchain adoption strategy. In a document, Argentina highlights the importance of this technology for the future and presents several use cases that would benefit from the introduction of blockchain for the country’s digital transformation.
Argentina Organizes National Blockchain Committee to Implement State-Level Strategy
Argentina Forms National Blockchain Committee
More and more countries are taking a look at how the implementation of blockchain technology can improve some of their public functions. Argentina has recently issued its national blockchain guidelines.
The document, presented on Dec. 7, also creates a national blockchain committee, which will have the responsibility of “acting as an interlocutor in the local blockchain ecosystem promoting interoperability of blockchain technologies and good governance.”
The committee will be constituted by the Secretariat of Public Innovation and other state organizations that will develop public policies based on blockchain and technological solutions. However, these other organizations that are called to be part of the committee are not detailed as part of the issued framework.
Areas of Interest
The government-issued framework presents several uses blockchain technology could have to help the state’s unique functions. The first area in which it is outlined that it has been used is auditing, given the large size and scope of some government structures. Blockchain is proposed as an element that will fulfill two functions in this regard: helping citizens see how the state is investing public funds and centralizing all public processes using a structure.
The second area has to do with citizen identification. The Argentine state considers that blockchain could be useful to help in identification processes by preventing forgeries of IDs and other documents issued by authorities. Organizing a system around blockchain would give third parties simple ways to confirm the validity of these documents.
In this sense, there are already initiatives that use blockchain for this purpose. The city of Buenos Aires is currently implementing a system called Tangoid and expects it to be operational in January as part of a digitalization push. The city will also run Ethereum nodes as an experiment to examine the inner workings of cryptocurrency and better understand it for regulatory purposes.
World Cup 2022 Quarter-Final Preview (Image: Bernadett Szabo/Reuters)
Argentina’s coach predicts a “beautiful game” against the Netherlands; the winner to take on Brazil or Croatia in the semis.
World Cup 2022 Quarter-Final Preview (Image: Bernadett Szabo/Reuters)
Who: Argentina vs Netherlands
Where: Lusail Stadium in Lusail, Qatar
When: Friday, December 9, 2022, 10 pm (19:00 GMT)
Argentina’s coach has predicted a “beautiful game” against the Netherlands when the two sides meet in Friday’s World Cup quarter-final.
The tantalizing clash between two of the great teams of world football at the 89,000-capacity Lusail Stadium comes after Lionel Scaloni’s men edged past Australia 2-1 in the last 16 and his veteran counterpart Louis van Gaal led the Dutch to a 3-1 win over the USA.
“It’s going to be a very beautiful game, with two historic teams. Sadly one team has to lose and we hope it’s us who go through,” Argentina’s Scaloni told reporters last Sunday.
“We face a difficult opponent, like everyone else, and we hope to do well. Maybe they’re not shining like the previous Dutch teams, but they’re very clear on what they’re doing.”
Argentina’s captain Lionel Messi and the talisman were equally clear on Sunday about the task ahead.
“They have great players and a great coach, it’s going to be very close,” he said, a day after scoring against Australia in his 1,000th career appearance. “It’s the quarter-finals of a World Cup and if a World Cup has been difficult from the start, it gets even harder at this stage.”
Aged 44, Argentina’s coach Lionel Scaloni is nearly three decades younger than his 71-year-old Dutch counterpart Louis van Gaal (Image: Kai Pfaffenbach/Reuters)
The 35-year-old’s influence in Qatar has grown game by match. Messi has scored three goals so far and is now just three wins away from handing Argentina a third World Cup trophy.
Messi’s increasingly impressive performances have fitted with Argentina’s growing stature as the tournament has unfolded, sidelining an opening 2-1 loss to Saudi Arabia to win three games on rebounding since then, scoring five goals and conceding just once in the process.
Head to Head (Image: Al Jazeera)
The Dutch Serve to Warn of Quality with Depay’s Goal
The Netherlands, meanwhile, will focus on dulling Messi in a clash that will pit the diminutive striker against Virgil van Dijk, the colossal captain of the Netherlands and one of the world’s best center-backs, while causing Scaloni his problems.
Van Gaal’s side has been boosted by the return to fitness of skilled attacker Memphis Depay and the continued good form of striker Cody Gakpo, who has scored three times in Qatar.
Similar to the strategy they employed against the United States, the Dutch can be content to concede control of the ball again for long stretches and threaten the counterattack, exposing any space left at the back by La Albiceleste.
Van Gaal has been under pressure in Qatar since declaring that the Oranje were capable of becoming world champions for the first time. He has also faced criticism for his team’s supposed conservatism, with Dutch teams traditionally known for more expansive football.
But the performance against the United States was a remarkable demonstration of what Holland can produce, with Depay’s first goal, which came on the back of a majestic 21-pass sequence, a graphic reminder of their quality.
“We just want to go out and show our quality, show the team spirit, show the togetherness we have, and move forward, hopefully, to the next stage,” he told reporters.
“We know we are three games away from glory,” he added. “We want to perform and leave everything on the field and I hope to succeed. And this is our opportunity and hopefully, we can enjoy the opportunity and get through it as well.”
The winners of Friday’s clash will face either Croatia or Brazil in the semifinals.
Iran Carries Out First Protest-Related Execution (Image: Getty Images)
The person was convicted of wounding a security guard with a long knife, the semi-official Tasnim news agency reports.
Iran Carries Out First Protest-Related Execution (Image: Getty Images)
Iran says it has executed the first prisoner known to have been convicted of an alleged crime stemming from ongoing protests across the country.
The person was convicted of wounding a security guard with a long knife and closing a Tehran street, the semi-official Tasnim news agency reported Thursday.
Tasnim added that the Supreme Court had rejected the defendant’s appeal and justified the sentence by saying the defendant’s actions represented a “crime of waging war against God.”
Iran has been rocked by protests since the Sept. 16 death of 22-year-old Mahsa Amini, who died after being detained by the country’s morality police.
Tasnim identified the person who was executed as Mohsen Shekari but gave no further details.
Authorities have been cracking down on protests and on Monday, the elite Revolutionary Guards praised the judiciary for what it called its tough stance and encouraged it to quickly and decisively issue trials for those accused of “crimes against the security of the nation and Islam.”
Judiciary spokesman Masoud Setayeshi announced Tuesday that five people accused of killing a Basij member have been sentenced to death in a verdict they can appeal.
Investors Overseeing $5 Trillion are Betting That an Economic Downturn Can Be Avoided (Image: Bloomberg)
Big money favors cyclical stocks, a sign of growing confidence.
The stance reflects faith in the Fed’s ability to reduce inflation.
Investors Overseeing $5 Trillion are Betting That an Economic Downturn Can Be Avoided (Image: Bloomberg)
Professional investors are loading up on bets that an economic downturn can be avoided despite all warnings to the contrary. It’s a dangerous gamble, for a variety of reasons.
Money managers have been favoring economically sensitive stocks, such as industrial companies and commodity producers, according to a Goldman Sachs Group Inc. study on the positioning of mutual funds and hedge funds with assets totaling nearly $5 trillion. Stocks that tend to perform well during economic downturns, such as utilities and consumer staples, are currently out of favor, according to the analysis.
The positions amount to bets that the Federal Reserve can control inflation without creating a recession, a difficult scenario to achieve often referred to as a soft economic landing. The precariousness of such bets was on display on Friday and Monday, when strong readings in the U.S. labor market and services sectors fueled speculation that the Fed will have to maintain its aggressive policies, raising risks of a policy error.
“The sector’s current tilts are consistent with positioning for a soft landing,” Goldman strategists including David Kostin wrote in a note on Friday, adding that fund industry thematic and factor exposures point to a similar stance.
It’s not that smart money has taken a chance. They have increased cash holdings or boosted bearish bets on stocks this year as the Fed embarked on the most aggressive inflation-fighting campaign in decades. But underneath the defensive posture is a cyclical tilt, one that is at odds with widespread concerns among the investment community that a serious economic contraction is on the horizon.
In a Bank of America Corp. survey of fund managers last month, a net 77% expected a global recession in the next 12 months, the highest proportion since the immediate aftermath of the 2020 Covid crisis.
Professionals may be slow to adjust their portfolios to reflect perceived economic risk. Or they are seeking protection from recession through other strategies, such as parking cash.
A more plausible explanation is linked to hopes that the Fed could design a soft landing. In this case, the bad economic news is seen as good for the market, as it shows that Fed Chairman Jerome Powell’s inflation-fighting campaign is working and therefore policymakers may backtrack on the aggressive pace of interest rate hikes.
The narrative, described as a pivot by the Fed, is widely cited as the reason the S&P 500 has rallied more than 10% from its October lows despite worsening data in areas such as housing and manufacturing and a reduction in earnings estimates.
Now, the opposite is happening. The shares sold off on Monday after an unexpected rise in a U.S. services gauge sparked fears that the Fed will have to stick to its hard line. The S&P 500 fell 1.8%, extending Friday’s losses, as stronger-than-expected jobs report ignited nervousness about Fed policy after Powell signaled a possible downward shift in the pace of tightening.
“If growth deteriorates too quickly or goes too far, then ‘bad news is bad news will outweigh the narrative,'” JPMorgan Chase & Co.’s sales and trading team, including Andrew Tyler, wrote in a note Monday. “In that scenario, markets are likely to retest the 2022 lows.”
