April 20,2018
United States:
U.S. Stocks Decline on Tech Woes, Treasuries Slide: Markets Wrap
U.S. stocks fell for the first time in four days as technology shares came under pressure from trade and earnings concerns. Treasuries hit the lowest since February amid a wave of selling across European sovereign debt and inflation. The S&P 500 Index dropped the most in nearly two weeks as tech shares slumped after Taiwan Semiconductor’s disappointing forecast roiled chipmaker stocks. China’s request for concessions from Qualcomm Inc. to acquire NXP Semiconductors NV ratcheted up tensions over trade. Earnings misses from Procter & Gamble Co. and Philip Morris International Inc. weighed on consumer staples. Stocks pared part of the loss in late trading after Deputy Attorney General Rod Rosenstein was said to tell President Donald Trump last week he isn’t a target of Special Counsel Robert Mueller’s investigation. Meanwhile, commodities prices remained high in the aftermath of U.S. sanctions on Russia and heightened tariff concerns. While torrid gains in metals from aluminum to nickel and oil faltered Thursday, the rallies have spurred speculation inflation will pick up. That helped to push 10-year Treasury yields above 2.9 percent for the first time since February. Rate-sensitive shares responded, with financial firms rallying the most in the S&P 500. Blowout earnings from American Express helped. Bond proxies like real-estate firms retreated. The dollar gained the most in three weeks.
IMF Spots Trouble Ahead for the Global Economy After 2020
The International Monetary Fund predicted the world economy’s strongest upswing since 2011 will continue for the next two years, but warned the seeds of its demise may have already been planted. The fund on Tuesday left its forecasts for global growth this year and next at the 3.9 percent it estimated in January and raised its outlook for the U.S. as Republican tax cuts take effect. Beyond that horizon, it was more pessimistic, projecting global growth will fade as central banks tighten monetary policy, the U.S. fiscal stimulus subsides, and China’s gradual slowdown continues. “Global growth is projected to soften beyond the next couple of years,” the IMF said in its latest World Economic Outlook report. “Once their output gaps close, most advanced economies are poised to return to potential growth rates well below pre-crisis averages, held back by aging populations and lackluster productivity.” The IMF warned the expansion could be derailed if countries resort to tit-for-tat trade sanctions. “The first shots in a potential trade war have now been fired,” IMF Chief Economist Maurice Obstfeld said in a foreword to the fund’s outlook, reiterating the IMF’s warning earlier this month that the global trading order is in danger of being “torn apart.” “Conflict could intensify if fiscal policies in the United States drive its trade deficit higher without action in Europe and Asia to reduce surpluses,” he said.
Europe:
Euro-Area Inflation Revised Lower as ECB Debates Policy Move
Euro-area inflation accelerated less than initially estimated last month, a setback for European Central Bank policy makers as they consider winding down unprecedented stimulus. Consumer prices in the 19-country bloc rose just 1.3 percent in March from a year earlier, according the European Union’s statistical office. While that’s up from 1.1 percent the previous month, the reading falls short of a 1.4 percent initial estimate. Core inflation, which strips out volatile components such as food and fuel, held at 1 percent for a third month. Bloomberg Economics noted that its supercore measure — which tracks domestically generated pressure — picked up to 1.2 percent from 1.1 percent. That’s the highest in four years. A recent slowdown in economic data hasn’t yet eroded confidence among ECB officials, who will next set policy on April 26, that inflation will return gradually to their goal of close to but below 2 percent. At the same time, there are different views among rate setters about when and how to scale back an asset-purchase program introduced more than three years ago to stoke price pressures. While Germany’s Jens Weidmann and Estonia’s Ardo Hansson have expressed their preference for a faster exit, ECB Executive Board member Peter Praet is among those more cautious. He argued this week that an ample degree of stimulus remains necessary, given “subdued” inflation developments. Policy makers must be “patient, persistent and prudent,” he also said. https://www.bloomberg.com/news/articles/2018-04-18/euro-area-inflation-revised-lower-as-ecb-prepares-policy-meeting
Asia:
Bonds Slump in India After RBI Surprises With Hawkish Minutes
Indian bonds tumbled as unexpectedly hawkish central bank minutes added to the pressure of higher oil prices, boosting bets policy makers will raise interest rates. The rupee fell to its weakest in more than a year. The nation’s 10-year yield was up seven basis points at 7.70 percent as of 1:36 p.m. in Mumbai, after jumping as much as 17 basis points earlier. It is up 27 basis points this week. The rupee fell past 66 per dollar to the lowest level since March 2017, as foreign funds pared holdings of local-currency debt for a fifth day on Thursday. Minutes of the April 4-5 meeting released Thursday showed most monetary policy committee members were optimistic the economy would rebound this year and actual output would move closer to its potential. Deputy Reserve Bank of India Governor Viral Acharya said he would vote for the start of the “withdrawal of accommodation” at the next meeting in June. The 10-year bond yield “has room to rise quite substantially,” said Suyash Choudhary, head of fixed income at IDFC Asset Management Co. “If this new bout of spike in commodity prices sustains till the June policy, then the RBI would definitely change its stance, and August is a real possibility of a hike.” Ten-year bonds are poised for a second weekly decline after the yield surged 25 basis points last week. It had dropped in each of the previous five weeks as policy makers took a slew of measures to revive the bond market. “Risk appetite is already very weak, nationalized banks are booking profits wherever available, the global environment is not conducive and on top of that, you have the hawkish RBI minutes,” said Choudhary. One-year interest-rate swaps climbed seven basis points Friday to 6.58 percent, the highest in two months. The move in interest-rate swaps indicates that the timeline for rate hikes has been brought forward by 3-to-6 months, said Vijay Sharma, New Delhi-based executive vice president for fixed-income at PNB Gilts Ltd. The rupee was down 0.4 percent to 66.0450 per dollar, after falling to as low as 66.0750 earlier. Overseas investors cut holdings of rupee-denominated government and corporate bonds by 16.6 billion rupees ($251 million) on Thursday. They sold a net $133.6 million of Indian shares on April 18.