The Boock Report

I’m going to start today with a quote from Crowdstrike in their earnings press release last night to highlight how circumspect businesses, especially small ones, are becoming in this slowing economic environment. After talking about still “robust growth”, “total net new ARR (annual recurring revenue) was below our expectations as increased macroeconomic headwinds elongated sales cycles with smaller customers and caused some larger customers to pursue multi-phase subscription start dates, which delays ARR recognition until future quarters.”

To add to more signs that China is responding to the protests, I saw Reuters reporting today that “China’s Guangzhou city relaxes Covid rules in several districts.” In the article it said, “One district, Conghua, said it would allow in-person classes in schools to resume and would reopen restaurants and other businesses including cinemas.” 

I saw a story on China’s Global Times that said “Beijing to reduce hospital service interruptions amid Covid-19 control.” The piece stated “Beijing authorities on Tuesday told hospitals to avoid closing important departments, such as emergency and maternity departments, even if they have been hit by Covid-19 cases.” 

Lastly on this, in yesterday’s South China Morning Post (owned by Alibaba), a story headlined “China’s policymakers urged to clarify how economic growth, zero-Covid can go hand in hand.” The bullet points were: “Academics and government advisors say trillions of yuan’s worth of China’s GDP appears to have been lost this year due to Beijing’s disruptive coronavirus-control policy. Impact on people’s lives and on China’s economy at large necessitate a more clearly conveyed strategy, experts say amid recent protests.” 

The rally in Chinese stocks continued in Hong Kong as the Shanghai comp was little changed. The H share index was up by 2.2% and is up by 8.5% over the past two trading days. The yuan is up sharply too, with the offshore FX rate higher by .9% after yesterday’s 1.5% jump. Copper is up by 2.9% and brent crude by 2.5%. 

The reopening hopes, whatever pace it takes from here and however bumpy, offset the current tough economic situation there as seen with the state sector weighted manufacturing and non-manufacturing PMI for November which fell to 47.1 from 49 with both below 50. 

In Europe, the November Eurozone CPI figure was up 10% y/o/y vs 10.6% in October and 4 tenths less than expected. The slower increase in the rate of energy price increases was the reason for the moderation. Taking out food and energy though and it was up 5% as forecasted and at the same pace seen last month. The CPI number didn’t ease inflation worries much as the 5 yr 5 yr euro inflation swap is up for a 3rd day and by 1.5 bps today to 2.35%. After falling yesterday, sovereign bond yields are up slightly today. With regards to the next ECB meeting on December 15th, the hawks sound like they want another 75 bps rate hike and the doves want 50 bps. Either way, the deposit rate will remain WELL BELOW the rate of inflation. 

Shifting to the US, the average 30 yr mortgage rate fell for a 3rd straight week to 6.49% according to the MBA. As this data is for the week ended November 25th, the Thanksgiving holiday likely distorted the numbers as refi’s fell 13% w/o/w while purchases were up 3.8%. Versus last year, refi’s are down by 86% and by 41% for purchases. 

With respect to Jay Powell today and his speech, my chips are on his expressed desire on one hand to slow the pace of rate hikes but reinforce that rates will stay higher for longer when they are done.