“Everyone Is Thinking It’s The Shanghai Accord All Over Again”
Back on January 9, when the S&P500 was just inches away from its Christmas Day bear market lows, we asked a simple question: is the Shanghai Accord 2.0 coming? Now, with the S&P back at all time highs, China unleashing a historic torrent of new credit after launching monetary and fiscal easing that shocked even the most cynical China skeptics and sent Chinese stocks soaring, and every central bank in the world reversing in the Fed’s footsteps and scrambling to cut rates as the global race to the currency bottom entered what may be its final lap, we have the answer.
Or do we?
For those who are rightfully confused, because while there are countless similarities between the “2016 scenario” and current markets, there are also some very specific differences, here is a great recap of the similarities and differences, excerpted from the latest weekend note by One River asset management’s CIO, Eric Peters:
Deja Vu
“Everyone’s thinking it’s 2016 all over again,” said the CIO. A global growth scare, equity weakness, dollar strength and commodity declines prompted central bankers to hash out the Shanghai accord in early 2016 that dramatically reversed these trends. “They’ve seen China ease this year, the Fed pivot, equities rebound,” he said. By late-April in 2016, the S&P 500 had jumped 17% from the Jan 2016 lows (this year it rallied +20%), and by late-April 2016, Chinese stocks rose +16% (this year +40%). “They’ve looked at this and said green light, risk on.”
“Pulling out the 2016 playbook, people piled into reflation trades,” continued the same CIO. “Short dollar trades, crap beats quality, dash for trash, EM equities and FX, commodities.” By late-April 2016, oil had surged +70% from the Jan 2016 lows (this year +50%), copper rallied +20% then (this year +18%). The dollar index had fallen -6% in 2016 (but this year DXY is up +1%), gold surged +23% (but this year flat).
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