(Bloomberg) — Asian stocks fell Friday, with the bulk of losses coming in Hong Kong, as China announced plans to impose a national security law on the city, which threatened to further escalate tension between Washington and Beijing. Treasuries climbed with the dollar.
Hong Kong’s Hang Seng fell over 4%. Losses were more modest in Tokyo and Sydney, while equity futures in Europe and the U.S. retreated. The yuan was steady as China’s National People’s Congress began with pledges to sell bonds and omit a GDP target for this year due to uncertainties stemming from the pandemic. Indian bonds rallied after the country’s central bank cut its policy rate in an unscheduled move.
Earlier, the S&P 500 closed lower, with signs mounting that President Donald Trump Trump will make his tough-on-China stance a key element of his re-election bid. China responded to accusations from Trump, warning that it will safeguard its sovereignty, security and interests, and threatened countermeasures.
Investors are parsing through initial details to come out of the NPC, China’s biggest political event of the year. Beijing is also preparing to impose national security legislation in Hong Kong, a show of legal force that could exacerbate tensions and threatened to reignite violent protests.
“The geopolitical risks are meaningful,” David Riley, chief investment strategist at BlueBay Asset Management LLP said on Bloomberg TV. “It’s a concern for the market, is a potential source of weakness and a correction.”
Meanwhile, the Bank of Japan kept its main policy rate while saying it will start a new lending program next month. India’s central bank chief is due to speak later Friday.
Elsewhere, crude oil fell about 5% in New York, while gold was steady. The Australian dollar dipped as Fitch Ratings Ltd. cut the country’s AAA credit rating outlook to negative.
These are some of the main moves in markets:
S&P 500 futures fell 0.6% as of 1:46 p.m. in Tokyo. The S&P 500 fell 0.8% on Thursday.Japan’s Topix index fell 0.8%.Hong Kong’s Hang Seng dropped 4.6%.South Korea‘s Kospi fell 1.5%.Australia’s S&P/ASX 200 Index lost 0.7%.Euro Stoxx 50 futures were 0.7% lower.
The yen rose 0.2% to 107.45 per dollar.The offshore yuan was little changed at 7.1408 per dollar.The euro bought $1.0930, down 0.2%.
The yield on 10-year Treasuries slipped two basis points to 0.65%.Australia’s 10-year yield fell two basis points to 0.90%.
West Texas Intermediate crude was at $32.08 a barrel, down 5.4%.Gold dipped less than 0.1% to $1,726 an ounce.
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Ukraine war: McDonald's to sell its Russian business – CTV News
More than three decades after it became the first American fast food restaurant to open in the Soviet Union, McDonald’s said Monday that it has started the process of selling its business in Russia, another symbol of the country’s increasing isolation over its war in Ukraine.
The company, which has 850 restaurants in Russia that employ 62,000 people, pointed to the humanitarian crisis caused by the war, saying holding on to its business in Russia “is no longer tenable, nor is it consistent with McDonald’s values.”
The Chicago-based fast food giant said in early March that it was temporarily closing its stores in Russia but would continue to pay its employees. Without naming a prospective Russian buyer, McDonald’s said Monday that it would seek one to hire its workers and pay them until the sale closes.
CEO Chris Kempczinski said the “dedication and loyalty to McDonald’s” of employees and hundreds of Russian suppliers made it a difficult decision to leave.
“However, we have a commitment to our global community and must remain steadfast in our values,” Kempczinski said in a statement, “and our commitment to our values means that we can no longer keep the arches shining there.”
As it tries to sell its restaurants, McDonald’s said it plans to start removing golden arches and other symbols and signs with the company’s name. It said it will keep its trademarks in Russia.
Western companies have wrestled with extricating themselves from Russia, enduring the hit to their bottom lines from pausing or closing operations in the face of sanctions. Others have stayed in Russia at least partially, with some facing blowback.
French carmaker Renault said Monday that it would sell its majority stake in Russian car company Avtovaz and a factory in Moscow to the state — the first major nationalization of a foreign business since the war began.
For McDonald’s, its first restaurant in Russia opened in the middle of Moscow more than three decades ago, shortly after the fall of the Berlin Wall. It was a powerful symbol of the easing of Cold War tensions between the United States and Soviet Union, which would collapse in 1991.
Now, the company’s exit is proving symbolic of a new era, analysts say.
“Its departure represents a new isolationism in Russia, which must now look inward for investment and consumer brand development,” said Neil Saunders, managing director of GlobalData, a corporate analytics company.
He said McDonald’s owns most of its restaurants in Russia, but because it won’t license its brand, the sale price likely won’t be close to the value of the business before the invasion. Russia and Ukraine combined accounted for about 9% of McDonald’s revenue and 3% of operating income before the war, Saunders said.
McDonald’s said it expects to record a charge against earnings of between US$1.2 billion and $1.4 billion over leaving Russia.
Its restaurants in Ukraine are closed, but the company said it is continuing to pay full salaries for its employees there.
McDonald’s has more than 39,000 locations across more than 100 countries. Most are owned by franchisees — only about 5% are owned and operated by the company.
McDonald’s said exiting Russia will not change its forecast of adding a net 1,300 restaurants this year, which will contribute about 1.5% to companywide sales growth.
Last month, McDonald’s reported that it earned $1.1 billion in the first quarter, down from more than $1.5 billion a year earlier. Revenue was nearly $5.7 billion.
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Canadian home prices fall 6% in April, down for 2nd month in a row – CBC News
Canadian home prices fell six per cent to $746,000 in April, as higher interest rates poured cold water on a red-hot real estate market.
Home sales fell 12 per cent nationally in April, with the biggest drops seen in big cities like Toronto, the Canadian Real Estate Association said Monday.
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Prices peaked at a record high of more than $816,000 in February this year and average home prices have now declined for two months in a row. In March, the average price stood at $796,000, before falling another six per cent in April, which is typically a strong month for the housing market.
“Following a record-breaking couple of years, housing markets in many parts of Canada have cooled off pretty sharply over the last two months, in line with a jump in interest rates and buyer fatigue,” CREA chair Jill Oudil said in a statement.
CREA says the average selling price can be misleading because it is easily skewed by expensive and numerous sales in big cities like Toronto and Vancouver. It highlights a different number called the House Price Index as a better gauge of the market because it adjusts for the volume and type of homes sold.
The HPI shrank by 0.6 per cent in April, the first monthly decline in two years.
While prices are down from their recent peak, they remain up by about seven per cent from where they were a year ago.
Still, the numbers paint a picture of a housing market cooling from its feverish activity just a few months ago.
“The exorbitant run-up for more expensive units (like detached homes) during the pandemic may give way to a steeper decline,” TD Bank economist Rishi Sondhi said in a note to clients.
“Moving forward, we expect prices to continue falling, reflecting the cooler demand backdrop.”
A problem for sellers — and some buyers, too
Lower prices may be welcome news for buyers trying to get into the market, but they’re anxiety-inducing for those trying to sell — especially if they’ve already bought somewhere else themselves.
For some recent buyers, a market that’s cooled after they’ve bought can cause major headaches. Some who bought at the highs assuming their lenders would loan them a certain amount are discovering in the appraisals process that the bank is valuing that property by less than anticipated, which forces the buyers to have to come up with more than they were expecting up front.
Leah Zlatkin, a mortgage broker with Lowestrates.ca, gives the example of a buyer who offered $1.2 million on a home and assumed their lender would finance 80 per cent of the cost. On appraisal, however, the lender valued the property at $1.1 million, which forces the buyer to come up with tens of thousands of dollars more than they anticipated.
“When home purchasers have really stretched their budget and bid over asking price, we are starting to see those appraisals come in a little bit lower in some cases,” Zlatkin told CBC News.
Keith Lancastle, CEO of the Appraisal Institute of Canada, says it’s not uncommon in frothy markets for buyers to get carried away and offer far more than an appraiser values the property at — and the same is true of down markets.
“The selling price doesn’t drive the mortgage, the appraised value drives the mortgage, and that’s the value that the lenders base their decision on,” he said.
Have questions about this story? We’re answering as many as we can in the comments.
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