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Asian shares slip as Evergrande, inflation worries sap positive mood

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Asian shares dipped on Monday as concerns about China’s property sector and inflation worries offset upbeat U.S. data and positive news on new drugs to fight the coronavirus.

Trading in shares of debt-laden China Evergrande was suspended after it missed a key interest payment on its offshore debt obligation for the second time last week.

“The biggest problem is not a default by Evergrande but the environment that has led to its downfall. Authorities are regulating housing loans and lending to property firms. Markets are looking for a next Evergrande already,” said Kazutaka Kubo, senior economist at Okasan Securities.

“There is rising risk Evergrande’s woes will spread to the entire Chinese property sector.”

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.3%. The index marked its first quarterly fall in six quarters.

Hong Kong led the decline with a 1.9% fall in the Hang Seng index. Japan’s Nikkei erased earlier gains to stand 1.4% lower at one-month lows of 28,375.

Chinese mainland markets will be closed until Thursday for the National Day holiday while South Korean markets were also shut on Monday.

MSCI’s broadest gauge of world shares, ACWI, slipped 0.1% to 711.92, not far from a three-month low hit on Friday at 705.27.

Investor sentiment got a lift on Friday after Merck & Co said an experimental oral antiviral treatment could halve the chances of dying or being hospitalised for those most at risk of contracting severe COVID-19.

A host of U.S. economic data released on Friday also showed increased consumer spending and accelerated factory activity but also lofty inflation.

Data published on Friday also showed euro zone inflation hit a 13-year high last month and looks likely to jump higher still.

Investors fear global inflation could persist for longer than expected, given a continued rise in commodity prices and ongoing supply disruptions in many parts of the world, despite Fed Chair Jerome Powell’s insistence that high inflation is transitory.

The core U.S. PCE price index, the Federal Reserve’s preferred inflation measure for its flexible 2% target, increased 3.6% in August from a year earlier, its biggest rise in three decades and matching July’s gain.

“Although Powell has stuck to his script that inflation will be transitory, he is also recently starting to hedge his comments too, leading investors to suspect he, too, is worried about inflation,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

Expectations that elevated inflation could prompt the Federal Reserve to bring forward its timeline for monetary policy tightening has boosted U.S. bond yields last week.

But yields have pulled away from last week’s multi-month peaks as month-end buying underpins bond prices.

The 10-year U.S. Treasury yield stood at 1.460%, off Tuesday’s three-month high of 1.567%.

Lower U.S. yields also weighed on the dollar in the currency market. The euro bounced back to $1.1608, off Thursday’s 14-month low of $1.1563.

The U.S. currency dipped to 111.00 yen, staying below Thursday’s 1 1/2-year high of 112.08 yen.

Oil prices remained elevated, with Brent futures staying just shy of a three-year peak hit late last month, on expectations oil producing countries will raise supply in a steady manner when they meet on Monday.

Brent futures traded at $78.99 per barrel, down 0.3% in early trade.

 

(Editing by Ana Nicolaci da Costa)

Economy

Stock Markets Today: EU economy, China GDP, Bitcoin, Squid Game – Bloomberg

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Good morning. Euro area economy vulnerable to shocks, China growth slows, Bitcoin rallies and Squid Game’s value. Here’s what’s moving markets.

Highly Vulnerable

European Central Bank President Christine Lagarde warned that the globalized nature of the euro area’s economy makes it highly vulnerable to systemic shocks from supply chain disruptions. Lagarde also said the current spike in inflation is unlikely to last, while vowing to continue aiding the euro-area economy as the fallout from the pandemic lingers. Supply bottlenecks, cost pressures, and a reopening letdown are already set to plague region’s third-quarter earnings season. 

Slowing Growth

China’s economy weakened in the third quarter, weighed by multiple headwinds from a property slump to an energy crisis. Gross domestic product expanded 4.9% from a year earlier, down from a previously reported 7.9% in the preceding quarter. People’s Bank of China Governor Yi Gang said authorities can contain risks posed to the Chinese economy and financial system from the struggles of China Evergrande Group.

Bitcoin Rallies

Bitcoin rallied early Monday after falling over the weekend, ahead of an anticipated U.S. exchange-traded fund approval. It fell both Saturday and Sunday to nearly $59,000 before climbing over $62,000 on Monday. Bitcoin is in focus as the first futures ETF tied to the token may debut Monday, according to a filing. Analysts expect profit-taking and volatility surrounding the decision.

Squid Game

Netflix estimates that its latest megahit, “Squid Game,” will create almost $900 million in value for the company, according to figures seen by Bloomberg, underscoring the windfall that one megahit can generate in the streaming era. The show stands out both for its popularity, and its relatively low cost, at just $21.4 million, less than Dave Chappelle’s new special “The Closer”. The viewership details are likely to cheer investors, who have regained enthusiasm for Netflix after several bumpy months, partly because “Squid Game” has been so popular.

Coming Up…

European futures are steady while contracts on U.S. stock benchmarks are pointing lower after last week’s strong performance. Oil advanced after an eighth weekly gain with the market facing a global energy crunch ahead of winter. Meanwhile, Koninklijke Philips will be among the European companies announcing results on Monday while State Street will report in the U.S. Also, Apple will finally unveil its redesigned MacBook Pro, the first revamp in five years.

What We’ve Been Reading

This is what’s caught our eye over the past 24 hours. 

And finally, here’s what Cormac Mullen is interested in this morning

Hedge funds have given up betting against short-term Treasuries, at least one gauge of positioning shows. Net leveraged-fund futures and options positions in two-year notes turned positive for the first time since April 2018, according to the latest Commodity Futures Trading Commission data. Two-year Treasury yields have surged some 25 basis points since early June as traders brought forward wagers on Federal Reserve rate hikes. The flip to net-long could suggest fast-money funds see a pause coming in the short-term yield spike, though some of the positioning is likely part of broader bets on the direction of the U.S. yield curve. In the interest-rate market, a full hike is now priced in for September next year, with traders about 50/50 in calling for one in June. That’s an aggressive move in a short space of time now given so much uncertainty over the path for inflation and growth until then.

#lazy-img-380107657:beforepadding-top:56.25%;Leveraged funds turn net long two-year Treasuries futures

Cormac Mullen is a cross-asset reporter and editor for Bloomberg News in Tokyo.

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    Oil prices climb to highest in years as COVID recovery, power generators stoke demand

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     Oil prices hit their highest in years on Monday as demand continues its recovery from the COVID-19 pandemic, boosted by more custom from power generators turning away from expensive gas and coal to fuel oil and diesel.

    Brent crude oil futures rose 87 cents, or 1%, to $85.73 a barrel by 0111 GMT, the highest price since October 2018.

    US West Texas Intermediate (WTI) crude futures climbed $1.12, or 1.4%, to $83.40 a barrel, highest since October 2014.

    Both contracts rose by at least 3% last week.

    “Easing restrictions around the world are likely to help the recovery in fuel consumption,” analysts from ANZ bank said in a note on Monday.

    “The jet fuel market was buoyed by news that the U.S. will open its borders to vaccinated foreign travellers next month. Similar moves in Australia and across Asia followed.”

    They added that gas-to-oil switching for power generation alone could boost demand by as much as 450,000 barrels per day in the fourth quarter.

    Still, supply could also increase from the United States, where energy firms last week added oil and natural gas rigs for a sixth week in a row as soaring crude prices prompted drillers to return to the wellpad.

    The U.S. oil and gas rig count, an early indicator of future output, rose 10 to 543 in the week to Oct. 15, its highest since April 2020, energy services firm Baker Hughes Co said last week.

    China’s economy, meanwhile, likely grew at the slowest pace in a year in the third quarter, hurt by power shortages, supply bottlenecks and sporadic COVID-19 outbreaks.

    The world’s second-largest oil consumer issued a new batch of oil import quotas for independent refiners for 2021 that show total annual allowances were lower than last year, a first reduction of import permits since these firms were allowed into the market in 2015.

     

    (Reporting by Jessica Jaganathan; Editing by Kenneth Maxwell)

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    Stop handing out free money (and other ideas for getting the economy back on track) | TheHill – The Hill

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    Supply chain shortages and inflation are hurting consumers and Democratic election prospects in 2022 and 2024. The Biden administration, no doubt aware of this possibility, is taking action to address the ill-effects of scarcity and higher prices. Recently, the administration mandated that the Port of Los Angeles remain open 24 hours a day so merchandise idling in shipping containers can be delivered faster to fill empty supermarket shelves and consumer shopping carts.

    But this response may be coming too late, because shortages and inflation have created uncertainty in the minds of consumers that cannot be easily reduced.

    While the administration has handled the COVID-19 pandemic well, it has been much less successful in dealing with the negative effects of the ensuing adjustments, including shortages, inflation, supply chain disruptions, high demand and uncertainty.  

    The widespread shortages were caused by sudden and rapid increases in consumer demand and by manufacturers and suppliers that were too slow or unable to respond swiftly.

    Once supply chain disruptions are straightened out as manufacturers increase their production and distributers move their products faster, shortages are bound to ease, though some could linger.  

    The U.S. economy is also experiencing a modest annual inflation rate of 5.4 percent, caused by the trillions of dollars that the Treasury gave Americans in 2020 to spend to avert a pandemic-induced depression. Flush with this cash and what they had saved while sheltering in their homes during the pandemic, consumers quickly increased demand for most products and services. They became less price sensitive and pushed inflation higher. Still, though worrisome, an annual inflation rate of 5.4 percent is hardly runaway or stagflationary.  

    But the excess cash is tapering off. Without it, consumers will be forced to reduce their demand and thereby push most prices downward. As a result, future inflation won’t be as drastic or widespread, especially since the Federal Reserve Board is planning to reduce the money supply, which will dampen inflation.

    But the uncertainty produced by the pandemic is likely to prevent people from getting back to normal and might foster some continued shortages and inflation.  

    Americans have been feeling confused and unsure about their future. Before the pandemic, they took stable prices and product availability for granted, knew the content and location of their jobs, woke up in the mornings to feed their kids and send them to school and were fairly content with their lives. Not anymore. Their world had changed, and the new one seems unfamiliar and scary to many. As a result, 4.3 millions have left the labor force since the onset of the pandemic.

    What can the White House and Congress do to alleviate shortages, inflation and uncertainty? Here are four ideas.  

    1. Take measures to ease shortages. Mandating that the Port of Los Angeles work nonstop will increase some supplies, but it’s not enough. It should be followed by similar action in other ports. Likewise, factories should be instructed to increase production. Such measures are easy to take in the case of consumer staples but more difficult in the case of computer chips, as chips are part of a global industry, and increasing their production requires building large factories and investing billions of dollars.

    2. Stop handing out free money to consumers. With less money to spend, demand and inflation will ease. Though Americans are no longer receiving government manna, many still have cash to spend, which will continue to exert some upward inflationary pressures. 

    3. Think again about the size, timing and spending schedule of infrastructure and Build Back Better initiatives. Pumping trillions of dollars into the economy could create a new round of inflation inflammation.

    4. Reduce uncertainty. Unfortunately, policymakers lack the knowledge, skills and tools to address this effectively. What is desperately needed is trusted and steady leadership to assure Americans that their lives as consumers, employees, parents and human beings will be more certain again. Unless they can be made to feel more content with their lives, the economy may continue to sputter and keep a fuller economic recovery at bay. 

    Can these challenges be successfully addressed in the coming year or two? Maybe. The U.S. discovered and produced a life-saving vaccine against COVID-19 in record time and enacted policies that averted depression. Likewise, I expect shortages and inflation to subside and a sense of normalcy to rise. This, plus efforts to make consumers feel more confident, would put the country on a more prosperous path. 

    Avraham Shama is the former dean of the College of Business at the University of Texas – Pan American. He is a professor emeritus at the Anderson School of Management at the University of New Mexico. His book, “The Impact of Stagflation on Consumer Psychology,” was published by Praeger publishing. 

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