April 3, 2018
United States:
U.S. Stock Futures Climb as Turmoil Starts to Ease: Markets Wrap
The technology-led turmoil that sent U.S. stocks into a tailspin showed signs of easing on Tuesday, with futures contracts for the main American gauges rising after Asia’s benchmark pared most of its decline. European shares fell, but losses were relatively contained. The Nasdaq 100, S&P 500 and Dow were all poised to open in the green following Monday’s selloff, while Treasuries fell and the dollar was little changed. The Stoxx Europe 600 Index headed for its first decline in four days as markets reopened after the long weekend, though the drop was less than a quarter of the S&P 500’s retreat a day earlier. The weakest euro-area manufacturing figures for eight months added to the sense of caution and the euro reversed its advance. After the worst three months for global stocks in more than two years, the second quarter started on the back foot as trade tensions festered and technology shares got slammed. The risk-off mood comes as investors prepare for earnings season. They still anticipate a strong showing, but will be watchful for any more signs of a slowdown in the synchronized global expansion. “What we are really seeing across the economies and markets are opposing forces playing out: in the economy you are seeing Fed versus inflation, in markets you are seeing momentum versus fundamental supports,” JPMorgan Asset Management Global Market Strategist Hannah Anderson told Bloomberg TV. “Investors need to be aware of these opposing forces along with a lot of the headline risk we are seeing come through when it comes to trade and regulation and how that’s going to impact their portfolios.”
Europe:
U.K. Factories Sustain Growth After Entering `Softer’ Phase
U.K. manufacturing maintained its pace of expansion in March, though there was a sharp slowdown in new orders. IHS Markit said its monthly Purchasing Managers Index was at 55.1, up from 55 in February and better than economists had forecast. The figure is also encouraging given the disruption from the “Beast from the East” storm during the month. The report had positive and negative elements, with output and employment up, and companies reporting a “strongly positive outlook.” But new orders rose the least since June and backlogs of work fell for a third straight month. IHS Markit said the average PMI reading in the first quarter was the weakest in a year and is consistent with manufacturing growth of about 0.5 percent. That compares with a 1.3 percent surge in the final three months of 2017. “Manufacturing has entered a softer growth phase,” said Rob Dobson, director at IHS Markit. “They key question is whether growth can now be sustained, albeit at a lower level, in the coming months. On that front the news is generally positive.”
Asia:
China to Respond to New U.S. Duties With ‘Same Scale, Intensity’
China will respond to any tariffs imposed by the U.S. against alleged violations of intellectual property rights with the same proportion, scale and intensity, said its U.S. ambassador Cui Tiankai. Cui’s comments, in an interview with state-run CGTN English news channel Tuesday, are the first to indicate that China will retaliate on a scale that matches U.S. plans for additional duties on Chinese imports. The U.S. is readying duties on $50 billion of Chinese products as punishment for what Washington sees as widespread violations of intellectual property rights. U.S. Trade Representative Robert Lighthizer has until Friday to propose a list of Chinese products to be targeted to compensate for what he said was harm caused to the U.S. economy by China’s policies. American companies doing business in China have long argued that China uses a range of tactics to force them to transfer intellectual property, and that Chinese entities engage in widespread theft of U.S. trade secrets. Following an investigation into China’s intellectual property practices, the USTR said the U.S. will “confront China over its state-led, market-distorting” practices in these areas. “If they do, we will certainly take counter measures of the same proportion and of the same scale, same intensity,” Cui said in the television interview. He said China has made good progress strengthening protection of intellectual property rights and is ready to look at cases where violations have occurred.
Indian Bonds Rally After RBI Allows Banks to Spread Debt Losses
India’s sovereign bonds rallied after the central bank allowed lenders to spread out trading losses, a second policy decision in two weeks to revive a debt market that had sold off for seven months. The Reserve Bank of India said late Monday banks can account for their bond-trading losses, incurred in the past six months, over as long as four quarters. The move will help bring state-run lenders — the biggest holders of debt — back to the market, said Dhawal Dalal, chief investment officer for debt at Edelweiss Asset Management Ltd. Government banks were staring at a potential mark-to-market loss of 200 billion rupees ($3 billion) in the March quarter, three times more than in the period to December, according to a Credit Suisse Group AG report last month. Hit by the erosion, lenders have remained on the sidelines, contributing to the deepest rout in two decades in the nation’s sovereign bonds. “The recent set of news are positive for the market and suggest that the authorities are getting proactive in their approach,” said Vivek Rajpal, a rates strategist at Nomura Holdings Inc. in Singapore. The rout was “largely a supply-demand issue. This balance is getting resolved slowly and this should push yields lower with time.” The reprieve came days after the government surprised traders by reducing the fiscal first-half borrowing, a move that spurred the first monthly advance since July. With the reduction in debt supply, traders have been expecting the government to do more to spur demand.