MARKET WRAPS
Watch For:
Eurozone New Commercial Vehicle Registrations; Germany Ifo
Index; Italy Business/Consumer Confidence Surveys; U.K. CBI
Distributive Trades Survey; updates from Carnival, Severn Trent
Opening Call:
Stocks in Europe are likely to stutter on Friday, as uncertainty
about potential risks from the crisis at Evergrande continue to
cast a shadow. In Asia, most stocks struggled for momentum, as did
oil, the dollar edged lower again, while Treasury yields and gold
notched modest gains.
Equities:
European equities are likely to waver on Friday, as persistent
worries over troubled Evergrande held back Asian markets. Japan's
Nikkei rose after reopening from Thursday's national holiday, but
shares elsewhere were muted.
On Wall Street, stocks rose broadly for a second consecutive
session, as investors expressed cautious hope that the problems at
Evergrande could be contained.
U.S. markets closed with no word on whether Evergrande would
make $83.5 million in debt payments by a Thursday deadline. Chinese
authorities are asking local governments to prepare for Evergrande
to potentially fail, The Wall Street Journal reported, signaling
Beijing's reluctance to bail it out.
"There is some confidence that the government is standing by to
make sure that this doesn't become more widespread," said Stephanie
Lang, chief investment officer at Homrich Berg. "There is no clear
indication that they are going to prop up Evergrande, but they will
make sure that this won't spillover more broadly."
Forex:
The dollar continued to pull back in Asia after it dropped
sharply Thursday, as risk appetite improved.
Sterling extended gains, after the Bank of England said it could
raise the bank rate before its asset purchases had finished.
"With quantitative easing set to run until the end of the year,
this implies that is would be possible, albeit unlikely, that the
BOE could hike rates later in 2021," said Dominic Bunning, head of
european forex research at HSBC.
Market pricing is now implying interest-rate rises in the first
quarter of next year, which "should support GBP for now," Bunning
said. "Any signs that these expectations might be pulled further
forward would be even more bullish."
Citi analysts said they were surprised by "the magnitude and the
timing" of the Turkish central bank's decision to cut interest
rates by 100 basis points to 18%.
Turkey now risks "the possibility of an adverse cycle of rising
inflation and expected inflation, which could further complicate
the country's already challenging price dynamics," Citi said.
Given a weaker international reserve position and a more
challenging macroeconomic backdrop, the possible adverse
consequences of premature easing are likely to be greater than
during similar episodes in the past. Citi's own recent analysis
suggested "there was no room for easing" and tighter policy would
have been more appropriate.
Bonds:
Treasury yields strengthened again in Asia, after the 10-year
note yield posted its biggest one-day climb since March on
Thursday.
"Powell said the tapering process could be wrapped up by
mid-2022, which would require either an earlier [than December]
start or larger reductions," Moody's said.
Unless upcoming economic data brings extreme surprises, "It
seems we're headed for an eight-month taper, or $15 billion
reduction per month," Moody's added.
"If 10-year yields close above 1.42%, look for a move towards
1.52%," said Tom di Galoma of Seaport Global Holdings.
Record inflows hit New York's reverse repo facility on Thursday,
a day after Fed doubled to $160 billion how much an individual
counterparty could place on its books.
The reverse repo facility took in $1.352 trillion, up from
$1.283 trillion on Wednesday, as money market funds and other
eligible firms continued to find it easier to move money to the Fed
for a 0.05% return rather than chase scarce private sector
short-term investments.
The size seen Thursday remained consistent with what analysts
had said was possible. That said, while Fed officials seem
completely fine with what's happening, the reverse repo tool saw
almost no activity as recently as the spring.
And it compares with a $8.5 trillion Fed balance sheet, and
dwarfs the $120 billion per month the Fed continues to add via its
bond buying stimulus.
Energy:
Oil futures were little changed in Asian trade, having closed
the New York session around 1.5% higher, as a return of risk
appetite in financial markets and fears of tightening crude
supplies kept the commodity well-bid.
Demand for crude remains tepid, weighed by slowing aviation
travel, Marex said. "Demand from the airline industry has slowed
down in recent months" and remains well below pre-pandemic
levels.
However, prices could be supported by signs of increased oil
consumption from crude importer Japan. The country's crude
inventory levels registered a net decrease of 882,390 kilolitres
for the week of Sept. 12 to 18, compared with a week earlier,
according to data from the Petroleum Association of Japan.
Metals:
Gold posted modest gains in Asia, as investors shrugged off
signals the Fed could begin scaling back its asset-purchasing
activity and possibly raise interest rates.
"It's quite impressive just how relaxed investors are with the
situation, " Oanda said. Even so, the Fed's intention to taper
should weigh on the precious metal, with Oanda expecting the
precious metal to test the $1,740/oz level soon.
Copper and aluminum prices were lower, as continued uncertainty
over Evergrande's possible demise weighed on sentiment, with the
wider base metals complex also broadly falling.
Beijing has asked local officials across China to prepare for a
"possible storm" which signals it may not step in to bail out the
property developer, according to the WSJ. This could have
repercussions for the real estate and construction sectors, which
may weigh on demand for the industrial metals.
Capital Economics said the Evergrande debacle is likely to hurt
the global metal industry.
"We think that the most likely outcome is a managed
restructuring, which would see other developers take over
uncompleted Evergrande projects. However...we doubt it will be
sufficient to offset the growing structural headwinds facing the
property sector."
Capital Economics said that "China accounts for around half of
global zinc consumption, of which 70% finds its way into the
construction sector," and copper "also relies heavily on the
Chinese construction sector...and this would be hard to offset even
with increased demand elsewhere."
TODAY'S TOP HEADLINES
China Evergrande Keeps Dollar Bondholders Guessing on Key
Interest Payment
Global investors who own China Evergrande Group's U.S. dollar
bonds were in the dark Thursday about whether the property giant
would make a key interest payment, a major test of the highly
indebted developer's ability to avoid a default.
Evergrande was on the hook to make $83.5 million in coupon
payments on Sept. 23 on dollar bonds with a face value of $2.03
billion. As of late afternoon in New York on Thursday, bondholders
hadn't received the money, according to people familiar with the
matter.
Pelosi Says Government Funding Won't Lapse
WASHINGTON-House Speaker Nancy Pelosi said Congress wouldn't let
government funding expire next week, the first hint that Democratic
leaders might decouple the government's funding from a contentious
increase in the debt limit, on the same day that the Biden
administration began preparing for a possible partial shutdown.
The Biden administration said Thursday that federal agencies are
reviewing contingency plans in the event that funding runs out at
12:01 a.m. on Oct. 1. The White House said it expects Congress to
take action to fund the government after its current funding
expires and is preparing out of an abundance of caution.
Democratic Leaders Scramble to Find Areas of Agreement on $3.5
Trillion Spending Bill
WASHINGTON-Democratic leaders raced Thursday to find enough
agreement around a roughly $3.5 trillion spending package to
assuage concerns between the party's dueling centrist and liberal
factions that threatened to derail a separate vote on an
infrastructure package next week.
Liberal Democrats have said the two bills are linked and have
balked at voting for the roughly $1 trillion infrastructure package
on Monday in the House unless the broader healthcare, education and
climate-change package has passed. The infrastructure bill has
already cleared the Senate with bipartisan support, and moderates
have urged leadership to bring it to the floor in the House.
America's Cash Might Stay on the Sidelines
If Americans ever feel comfortable again, they have a lot of
money that they can spend. But who knows when that comfort will
come?
The Federal Reserve on Thursday reported that the net worth of
U.S. households was $134 trillion in the second quarter-up from
$128.4 trillion in the first quarter. That figure stood at $110
trillion In the fourth quarter of 2019, before the pandemic took
hold. Including nonprofits, accumulated household net worth in the
second quarter hit a record $141.7 trillion.
Merger Mania Is Only Part of the Solution for Asset Managers
Just about everybody agrees that asset managers need to get
bigger. But mergers may not be a cure-all.
The rapid growth of low-cost passive investment options and
pressure on fees for active management have been piling pressure on
asset-management companies for years. One way to relieve that
pressure has been through scale, spreading costs across a wider
revenue base and helping firms better compete with the likes of
giant BlackRock.
U.K. Consumer Confidence Wanes in September on Inflation
Fears
Confidence among British consumers took a hit in September,
falling to a five-month low, as concerns over high inflation and
the end of government support soured consumers' mood.
GfK's consumer-confidence barometer came in at minus 13 in
September, down five points from August and missing economists
expectations, who had forecast a reading of minus seven when polled
by The Wall Street Journal.
Palladium Prices Hit by Car Production Slowdown
The new-car shortage is dragging palladium prices toward their
worst month in a decade.
The most actively traded palladium futures on the New York
Mercantile Exchange have fallen more than 20% so far in September,
on pace for their worst month since September 2011, according to
FactSet. Palladium, a key ingredient in emission filters for
gasoline engines, fell 3.2% Thursday to $1,971.80 a troy ounce.
Nike's Revenue Pinched by Supply-Chain Disruptions
The Covid-19 pandemic has caught up with Nike Inc. The sneaker
giant's revenue growth is being limited by supply-chain disruptions
that have slowed the production and delivery of shoes and other
goods around the world.
Nike on Thursday reported revenue of $12.25 billion for the
quarter ended Aug. 31, up 16% from a year earlier and essentially
flat with the June quarter. The results were below expectations of
Wall Street analysts, who had expected revenue to reach $12.47
billion.
Write to paul.larkins@dowjones.com
Expected Major Events for Friday
05:00/FIN: Aug PPI
06:00/EU: Aug New Commercial Vehicle Registrations in Europe
statistics (EU27 + EFTA3)
07:00/CZE: Sep Business cycle survey (consumer/business
confidence)
07:30/SWE: Aug PPI
08:00/GER: Sep Ifo Business Climate Index
08:00/ITA: Sep Consumer Confidence Survey
08:00/ITA: Sep Business Confidence Survey
09:00/LUX: Jul Trade
10:00/IRL: 2Q Labour Force Survey
10:00/UK: Sep CBI Distributive Trades Survey
13:00/BEL: Sep Business Confidence Survey
15:59/UKR: 2Q Unemployment
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(END) Dow Jones Newswires
September 24, 2021 00:37 ET (04:37 GMT)
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