Date: October 9, 2018
United States:
Stocks Retreat as Treasury Yield Hits 7-Year High: Markets Wrap
All eyes were on benchmark Treasuries on Tuesday as trading reopened in the wake of last week’s selloff and following a holiday on Monday. The 10-year yield crept up to a fresh seven-year high, while U.S. equity futures slid with stocks across Asia and Europe. As the yield touched 3.25 percent, both the S&P 500 and the Stoxx Europe 600 Index looked poised for a fourth day of declines. The MSCI Asia Pacific Index notched a seventh straight drop, even as stocks in Shanghai rose following their biggest selloff in more than three months. The yuan gained in onshore trading after sliding a day earlier — a move that has prompted concern within the American administration. Japanese stocks slumped. In Italy, the FTSE MIB Index started on the front foot, though it reversed gains to edge closer to a bear market. The country’s 10-year yields jumped again as Finance Minister Giovanni Tria appealed for calm amid the war of words between the government and European Union authorities. The pound weakened amid a slew of Brexit warnings. A gloomy mood continues to permeate markets, and it looks like the latest report from the IMF will do little to spur investor confidence. The fund has reduced its outlook for global growth for the first time since 2016, in part because of growing trade tensions between the world’s two largest economies. China took steps to aid lending this week, a move that inevitably puts pressure on the yuan, with weakness of the currency threatening to further aggravate the trade tensions in a vicious circle that could prompt more Chinese easing. “If the trade confrontation continues, the Chinese currency will go lower and that will create a whole host of problems for the global economy,” said Alicia Levine, chief strategist at BNY Investment Management. Elsewhere, oil traded in New York advanced toward $75 a barrel. Iron ore futures in Dalian jumped to the highest level in almost three weeks on demand. South Korea’s market was closed for a holiday.
Europe:
German Industry Warns of `Massive Crisis’ From No-Deal Brexit
German industry warned that Europe risks sinking into chaos and trade will collapse if U.K. and European Union leaders fail to resolve their differences on the future of Britain’s relationship with the bloc, stepping up pressure amid a final push for a deal. “The next EU summit in two weeks must bring a breakthrough in the talks,” Joachim Lang, managing director of Germany’s powerful BDI industrial lobby, said Tuesday at a press conference in Berlin. “Otherwise, Europe is in danger of sliding into a disorderly Brexit. The result would be a massive crisis.” The fallout of a no-deal Brexit could cause German exports to the U.K. to tumble as much as 57 percent as tariffs and customs barriers impede trade, the IW economic institute in Cologne said in a study published Tuesday. Industries that would be particularly hard hit include logistics, autos, aerospace, pharmaceuticals and chemicals, according to the BDI. “This horror scenario should push policy makers into constructive action,” Markus Jung, an IW researcher, said in the report. The alarm bells from German industry reflect mounting tension ahead of the critical Oct. 17 summit. The U.K. hinted on Monday that a breakthrough in negotiations may not be imminent, insisting the EU must make the next move on how Britain’s future ties with the bloc will be organized. Brexit has already been hard on German companies, with some chemicals and pharmaceutical firms each spending as much as 100 million euros ($114 million) to prepare, according to the BDI’s Lang. “That’s money they certainly could have used for other purposes,” he said, adding that a transition period through at least the end of 2020 was essential for German firms. Any new customs formalities would be “a negative deviation from the status quo, which can’t be welcomed by industry either in Great Britain or in continental Europe.”
Asia:
Investors Flee China Stocks as Foreigners Dump $1.4 Billion
Chinese stocks’ worst October start in a decade is scaring off the last remaining bulls. Foreigners dumped 9.7 billion yuan ($1.4 billion) of yuan-denominated shares through exchange links with Hong Kong on Monday, just short of a record hit eight months ago, as mainland markets reopened after a week-long break. Ping An Insurance (Group) Co., Kweichow Moutai Co. and Hangzhou Hikvision Digital Technology Co. — old favorites that jumped at least 97 percent last year — were the most sold by overseas traders Monday. The FTSE China A50 Index of China’s biggest companies sank almost 5 percent for its biggest selloff since January 2016, while the yuan slumped as much as 0.9 percent to 6.9315 per dollar, further damping demand for the nation’s assets. Some traders said the apparent lack of support from the national team, as China’s state-backed funds are known, helped accelerate stock market declines in the afternoon. Easing measures from the People’s Bank of China didn’t blunt the pain, as investors focused on the recent barrage of negative news, including weak manufacturing data and accusations of election meddling. The slump followed losses of a similar magnitude by Chinese shares in Hong Kong last week. “Foreign investors turned bearish, unlike their previous optimistic buying of Chinese A shares,” said Steven Leung, executive director at Uob Kay Hian (Hong Kong) Ltd. “The massive northbound selling is a sign of growing concern over the relationship between the U.S. and China.” International investors had started to load up on Chinese shares as global index compilers increased weightings of yuan-denominated shares on their benchmarks and a slump made valuations more compelling relative to global peers. The nation’s equity market had already lost $2.4 trillion in value since January before Monday amid signs that deleveraging and a trade spat with the U.S. is hurting economic growth. Aggravating declines for foreign investors is the yuan, which has tumbled 9 percent against the dollar in the last six months in one of Asia’s worst performances. The currency is close to falling past its August low of 6.9340 to levels last seen in January 2017. The Trump administration is concerned about the yuan’s depreciation as the Treasury Department weighs whether to name China a currency manipulator in a report due out next week, a senior Treasury official said Monday.