September 27, 2019
United States:
U.S. Stock-Index Futures Climb, Treasuries Drop: Markets Wrap
“U.S. equity futures advanced with stocks in Europe while Treasuries trimmed their declines as key inflation and spending data was released for the world’s largest economy. The dollar edged lower. Contracts on the three main stock gauges in the U.S. pointed to a firm opening in New York. Mining and car-maker shares led the European Stoxx 600 higher, along with U.K. stocks. Britain’s exporter-heavy FTSE 100 rose along with gilts after Bank of England policy maker Michael Saunders said rate cuts may be needed even if there is a Brexit deal. The pound dipped before recovering, and the yen weakened. Oil fell after a report that Saudi Arabia had moved to impose a partial cease-fire in Yemen. Treasury 10-year note yields held around 1.71%. With the latest data suggesting the U.S. economy cooled a bit in August, risk sentiment remains unsettled after taking a hit on Thursday. There is heightened political drama in Washington over the impeachment inquiry of President Donald Trump and reports that the U.S. is unlikely to extend a waiver allowing American firms to supply China’s Huawei Technologies. “A favorable development on the trade front — that would be the biggest catalyst at this point” to drive equities higher, Brian Jacobsen, multi-asset strategist at Wells Fargo Asset Management, told Bloomberg TV. “We seem to be just waiting and seeing” until the high-level U.S.-China talks next month, he said. Elsewhere, Bitcoin slipped for a sixth session close to the $8,000 mark, in its longest losing streak in almost a year. Earlier in Asia, Japanese equities tumbled as a swath of companies traded without the right to the next dividend payment. Stocks fell in Seoul and gained in Australia while a Shanghai benchmark was almost flat. The yen weakened.”
Europe:
European Confidence Drops to Four-Year Low as Economy Stumbles
“The outlook for the euro-area economy has taken another hit, with confidence in industry dropping to its lowest in six years in a sign that the impact of uncertainty from trade tensions and Brexit is getting worse. A downturn centered on manufacturing is weighing heavily on the region, with Germany on the brink of recession and most major economies recording slower growth. The latest European Commission survey highlights the damage, with industry managers more worried about demand from customers and showing less enthusiasm for hiring. The decline dragged an overall measure of euro-area sentiment down more than economists had forecast in September, to its weakest reading since early 2015. The euro, which has fallen almost 4% in the past three months, was little changed at $1.0924 as of 11:35 a.m. Frankfurt time. Manufacturing across the euro area, and particularly in Germany, has been hammered by a cocktail of uncertainty stemming from trade tensions between China and the U.S., and negotiations over the pending exit of the U.K. from the European Union. The slowdown has already prompted a response from the European Central Bank. It cut interest rates this month and announced a new round of asset purchases, joining a global wave of monetary easing.”
Asia:
China Markets May Benefit From Latest Rules on Wealth Products
“China’s planned capital rules for banks’ wealth management units may provide a boost to both credit growth and the country’s stock market, according to JPMorgan Chase & Co. The China Banking and Insurance Regulatory Commission on Sept. 20 published draft rules requiring net capital of banks’ wealth businesses to be at least 40% of their net assets. Should the draft be adopted, banks’ issuance of wealth management products — often seen by investors as quasi-savings with higher returns than deposits — may rebound, JPMorgan analysts led by Katherine Lei in Hong Kong wrote in a note on Friday. Outstanding wealth management products totaled 27 trillion yuan ($3.9 trillion) at the end of June. The offerings are a key prop to the nation’s shadow banking industry; demand for such products boomed in recent years amid a sluggish stock market and limited investment options. Yet policy makers have been trying put a damper on them since 2017, with the chief banking regulator stressing that high risks come with high returns. While renewed growth in WMPs would lower funding costs for both corporate and government bonds, as well as banks’ capital instruments, a “rebound in shadow credits may lead to higher financial risks in the long run,” Lei and her colleagues wrote, suggesting that the rules could have been tougher. For example, risk weightings drafted for WMP holdings of other banks’ capital instruments, such as perpetual bonds, could spur further cross-holdings among lenders, the analysts said. Banks may also allocate more of their WMP portfolios into equities as the risk weightings for investing client money in listed shares are zero, they added. Stocks made up only 2% of the total at the end of last year.”
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