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Yields Rise, Stocks Mixed After China Rate Puzzles: Markets Wrap

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(Bloomberg) — European stocks climbed in muted trade on Monday as gains in energy companies outweighed concerns over mixed policy signals from China.

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TotalEnergies SE, Shell Plc and BP Plc were among the biggest contributors to Europe’s Stoxx 600 equity benchmark as crude oil rose for a third day and gas prices jumped amid threats of supply disruptions from a potential strike in Australia. Trading volumes were about a third lower than usual. US futures contracts were steady.

A gauge of Asian stocks dropped for the seventh day in the longest losing streak since June 2022. The Hang Seng Index declined as much as 2% and shares in mainland China fell 1.4%.

Confusion over China’s approach to stemming the nation’s property slump strained sentiment. Chinese lenders cut the one-year loan prime rate by 10 basis points and kept the five-year prime loan rates unchanged even after policymakers called for more lending. Traders had expected a 15-basis-point cut on both rates.

Yields climbed across tenors, bringing the 10-year’s back on its path toward the highest level since November 2007 and the 30-year’s near 2011 highs, as a selloff in the Treasury market this month wiped out what was left of year-to-date gains. Wary investors are facing entrenched inflation and the prospect of more policy tightening ahead of the annual Jackson Hole, Wyoming, gathering of central bankers later this week.

Federal Reserve Chairman Jerome Powell is expected to strike “a more balanced tone in Wyoming, hinting at the tightening cycle’s end while underscoring the need to hold rates higher for longer,” according to Anna Wong at Bloomberg Economics.

The mood in equity markets has soured since the start of the month, when traders were pricing in a rosy outlook of peak rates in sight and a resilient US economy pointing to a soft landing. The recent surge in bond yields, combined with still-hawkish rhetoric from central bankers and a deteriorating outlook in China have challenged the optimistic view.

Investors who chased the rally earlier this year are now bulking up on hedges in preparation for risks confronting the market. The put/call ratio spiked to highest since March last week, while volatility has jumped to the most elevated level since May in the US and in Europe.

A gauge of dollar strength traded little changed, following small losses Thursday and Friday that trimmed its five weeks of gains. Meanwhile, the offshore yuan fell against the greenback. The People’s Bank of China had earlier set the daily reference rate for the yuan at a level stronger than the average estimate in a Bloomberg survey.

European natural gas prices soared as workers serving a key export project in Australia prepare for a strike if no deal is reached in pay talks on Wednesday. Benchmark Dutch front-month gas soared as much as 18% on Monday morning as the possibility of supply disruptions in Australia, which may affect 10% of global liquefied natural gas exports keeps European traders on edge.

Oil rose for a third day as signs the physical market is tightening and a stall in the dollar’s rally offset growing demand risks in China and the US.

Key events this week:

  • US existing home sales, Tuesday
  • Chicago Fed’s Austan Goolsbee speaks, Tuesday
  • Eurozone S&P Global Services & Manufacturing PMI, consumer confidence, Wednesday
  • UK S&P Global / CIPS UK Manufacturing PMI, Wednesday
  • US new home sales, S&P Global Manufacturing PM, Wednesday
  • US initial jobless claims, durable goods, Thursday
  • Kansas City Fed’s annual economic policy symposium in Jackson Hole begins, Thursday
  • Japan Tokyo CPI, Friday
  • US University of Michigan consumer sentiment, Friday
  • Fed Chair Jerome Powell, ECB President Christine Lagarde to address Jackson Hole conference, Friday

Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 rose 0.3% as of 8:25 a.m. London time
  • S&P 500 futures were little changed
  • Nasdaq 100 futures rose 0.1%
  • Futures on the Dow Jones Industrial Average were little changed
  • The MSCI Asia Pacific Index fell 0.4%
  • The MSCI Emerging Markets Index fell 0.4%

Currencies

  • The Bloomberg Dollar Spot Index was little changed
  • The euro rose 0.1% to $1.0886
  • The Japanese yen was little changed at 145.38 per dollar
  • The offshore yuan fell 0.2% to 7.3194 per dollar
  • The British pound was little changed at $1.2741

Cryptocurrencies

  • Bitcoin fell 0.8% to $26,031
  • Ether fell 1.1% to $1,671.35

Bonds

  • The yield on 10-year Treasuries advanced three basis points to 4.28%
  • Germany’s 10-year yield was little changed at 2.63%
  • Britain’s 10-year yield was little changed at 4.68%

Commodities

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Brett Miller, Qizi Sun and Ameya Karve.

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Netflix’s subscriber growth slows as gains from password-sharing crackdown subside

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Netflix on Thursday reported that its subscriber growth slowed dramatically during the summer, a sign the huge gains from the video-streaming service’s crackdown on freeloading viewers is tapering off.

The 5.1 million subscribers that Netflix added during the July-September period represented a 42% decline from the total gained during the same time last year. Even so, the company’s revenue and profit rose at a faster pace than analysts had projected, according to FactSet Research.

Netflix ended September with 282.7 million worldwide subscribers — far more than any other streaming service.

The Los Gatos, California, company earned $2.36 billion, or $5.40 per share, a 41% increase from the same time last year. Revenue climbed 15% from a year ago to $9.82 billion. Netflix management predicted the company’s revenue will rise at the same 15% year-over-year pace during the October-December period, slightly than better than analysts have been expecting.

The strong financial performance in the past quarter coupled with the upbeat forecast eclipsed any worries about slowing subscriber growth. Netflix’s stock price surged nearly 4% in extended trading after the numbers came out, building upon a more than 40% increase in the company’s shares so far this year.

The past quarter’s subscriber gains were the lowest posted in any three-month period since the beginning of last year. That drop-off indicates Netflix is shifting to a new phase after reaping the benefits from a ban on the once-rampant practice of sharing account passwords that enabled an estimated 100 million people watch its popular service without paying for it.

The crackdown, triggered by a rare loss of subscribers coming out of the pandemic in 2022, helped Netflix add 57 million subscribers from June 2022 through this June — an average of more than 7 million per quarter, while many of its industry rivals have been struggling as households curbed their discretionary spending.

Netflix’s gains also were propelled by a low-priced version of its service that included commercials for the first time in its history. The company still is only getting a small fraction of its revenue from the 2-year-old advertising push, but Netflix is intensifying its focus on that segment of its business to help boost its profits.

In a letter to shareholder, Netflix reiterated previous cautionary notes about its expansion into advertising, though the low-priced option including commercials has become its fastest growing segment.

“We have much more work to do improving our offering for advertisers, which will be a priority over the next few years,” Netflix management wrote in the letter.

As part of its evolution, Netflix has been increasingly supplementing its lineup of scripted TV series and movies with live programming, such as a Labor Day spectacle featuring renowned glutton Joey Chestnut setting a world record for gorging on hot dogs in a showdown with his longtime nemesis Takeru Kobayashi.

Netflix will be trying to attract more viewer during the current quarter with a Nov. 15 fight pitting former heavyweight champion Mike Tyson against Jake Paul, a YouTube sensation turned boxer, and two National Football League games on Christmas Day.

The Canadian Press. All rights reserved.

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