North American morning briefing: stable markets with the Fed in sight
Housing starts for August; FedEx 1T Profits
Stock futures rose on Tuesday, suggesting markets were poised to rebound a day after concerns over China’s real estate sector helped fuel a global sell-off in stocks and commodities.
In Asia, Hong Kong’s flagship Hang Seng index fell 1.3% but quickly recouped most of those losses and rose 0.5% at the close of trading.
Global stocks slipped this week amid concerns over a possible default by real estate giant China Evergrande Group. Despite the stronger tone on Tuesday, investors remain concerned about the ripple effects the Evergrande debt crisis could have on China’s already weak economic growth.
“Evergrande is not an isolated incident,” said Dave Wang, portfolio manager at Nuvest Capital in Singapore. “There are, and there will be, more failed real estate developers.” Given the sector’s contribution to the economy, “the markets take into account the possible impact of contagion,” he said.
Investors say concerns about the struggling real estate giant come at a fragile time for markets. Signs that US economic growth may slow have helped halt a long-lasting recovery, as expectations are growing that the Federal Reserve is moving closer to announcing a cut in its stimulus measures.
Fed officials are expected to meet on Tuesday for a monetary policy meeting that will be reviewed by investors to gain insight into the central bank’s plans for its bond purchases and interest rates.
“We are at a crossroads: we are moving away from maximum political accommodation and at the same time the V-shaped recovery is over and that poses real questions about the future,” said David Donabedian, chief investment officer at CIBC. Private. Richness. “We had a great run, but it’s going to get harder from here on, with lower returns and more volatility.”
China Evergrande stock fell another 0.4% to HK $ 2.25 per share, bringing its year-to-date decline to nearly 85%. Shares of some other major Chinese real estate groups rose, however. Trade in mainland China was closed on Tuesday for a public holiday.
Elsewhere, Japanese stocks caught up with Monday’s sell-off, with the Nikkei 225 falling 2.2%. The Japanese market had been closed on Monday for a public holiday.
In Europe, the pan-continental Stoxx Europe 600 index rose 1%. Universal Music Group jumped on its stock market debut. Shares of the company, which was split from French media group Vivendi, rose more than 37% from their benchmark price.
Actions to watch out for:
German American Bancorp has agreed to a merger agreement which will see Citizens Union Bancorp of Shelbyville merge with German American Bancorp. The agreement will see the Citizens Union Bank subsidiary of Shelbyville merge with German American Bank subsidiary German American Bank.
Under the terms of the agreement, shareholders will receive 0.7739 German-American common stock and $ 13.44 in cash per share of Shelbyville’s Citizens Union Bancorp. The companies said German American would issue about 2.9 million common shares and pay about $ 49.8 million in cash. German American will also make a cash payment in cancellation of unexercised Citizen Union stock options. This payment is currently estimated to be around $ 900,000 “if none of the outstanding options were exercised prior to closing,” the companies said.
The dollar fell slightly as markets stabilized after Monday’s turmoil. However, it “seems too early to expect calmer waters just yet,” with Chinese markets reopening on Wednesday, ING said.
The dollar’s rise on Monday, which saw the DXY dollar index hit a four-week high, may have been tempered by fears that falling stock markets would deter the Fed from sending a hawkish signal about the plans. aimed at gradually reducing the monetary stimulus at its meeting announcement. Wednesday, said ING analysts.
Metzler said the dollar is currently receiving double support, taking advantage of the uncertainty affecting overall risk sentiment and the expectation of the Federal Reserve to say something about plans to curtail asset purchases at the meeting. Wednesday. This backdrop brought EUR / USD into the 1.17 area, leaving little room for the intermediate low of 1.1663 reached on August 20, Metzler said.
“For the dollar in general, but from our perspective for the EUR / USD in particular, it is of enormous importance how the Fed verbally formulates its actions (or non-actions).”
ING said the U.S. decision to reopen the borders to fully immunized foreign visitors would significantly boost the economy, potentially boosting GDP growth by 0.75 percentage points in 2022.
Additional spending of $ 140 billion would directly increase U.S. GDP assuming a full recovery in the number of foreign travelers next year, said ING chief international economist James Knightley. Visitors’ money would spill over into sectors that continue to fall behind the broader recovery, such as accommodation or recreation and entertainment.
The yield on the 10-year Treasury bill edged up at the start of the European stock, as the global market stabilized somewhat
As Fed officials meet in Washington this week, “the situation in China only adds to the list of factors arguing for more patience on the part of monetary policy makers as they move forward. ‘Greater clarity is gained and the broader impact of the market is felt more,’ BMO strategist Ian Lyngen. Capital Markets wrote in a note.
Newton Investment Management said this week’s Fed meeting was probably too early for it to commit to phasing out, as it is still unclear where inflation will sit and there are still uncertainties. on the United States’ recovery path.
“There is still a long way to go for the US economy to reclaim all the jobs it has lost and there is still a risk of increased cases of the virus causing further restrictions,” said Jon Day, manager of fixed income portfolio. The Fed’s message could become more urgent, but it will be patient with announcing an official phase-out start, Day said, considering the November meeting was more likely for this.
Capital Economics identifies three channels through which the pandemic has driven inflation up this year: a rebound in global commodity prices, a rise in prices caused by friction as sectors reopen after closures and emerging shortages of goods as the global supply struggles to keep pace with increasing demand.
About nine-tenths of the rise in inflation in advanced economies this year is due to these three factors, which are expected to prove transitory, said Neil Shearing, chief economist at Capital Economics. “The increase in inflation resulting directly from the pandemic is nearing a peak.” Capital Economics expects headline inflation to decline in advanced economies in 2022.
Crude futures have rebounded in Europe as part of a broader market recovery, ING said, with confirmation by Shell that part of its capacity in the Gulf of Mexico closed by Hurricane Ida could stay offline for a while, supporting oil gains.
Meanwhile, European gas storage is at around 72% of its capacity, compared to a 5-year average of 88%, said Warren Patterson of ING. “The tension in the European market suggests that prices are likely to remain high, as well as volatile.”
Gold rose but continued to trade within a narrow range this week. “The strength of the dollar, coupled with the Fed’s expectations, appears to have kept the price of gold under control,” said Daniel Briesemann, metals analyst at Commerzbank.
Copper prices rose 1.5% on the LME, recouping some of Monday’s losses, but market participants remain concerned about the ramifications of an Evergrande default.
“The markets are still waiting for clarity [on] how Evergrande will be able to manage its $ 300 billion in liabilities, ”said Anna Stablum, of brokerage firm Marex.
Meanwhile, the International Copper Study Group said the global refined copper market had a deficit of 90,000 tonnes in June compared to a surplus of 4,000 tonnes the month before.
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September 21, 2021 06:03 ET (10:03 GMT)
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