LIVE MARKETS-Evergrande: just a wake call?
LIVE MARKETS-Evergrande: just a wake call?
Sept 24 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at firstname.lastname@example.org
EVERGRANDE: JUST A WAKE-UP CALL? (1132 GMT)
There seems to be quite a strong consensus out there that China's Evergrande doesn't pose a systemic risk for global markets even if Monday's selloff is probably still on every trader's mind.
For Amundi's CIOs, the worries surrounding a possible default of the Chinese developer constitute a timely warning of the risks facing markets.
"Evergrande is a wake-up call for investors and a reminder of the highly leveraged sectors in the system, with valuations at boiling point", Pascal Blanqué and Vincent Mortier wrote in a note today where they lower their growth forecast for China.
But Blanqué and Mortier believe there's a much broader issue for investors.
"We expect higher volatility in global markets in the coming months and not only from China", they warn, pointing out to the U.S. debt ceiling negotiations and Europe's issues with rising energy prices.
It's time to adapt to a less positive environment they argue.
"We believe that it is time to be neutral in terms of risk allocation and increase scrutiny on those areas which could be hit by spillover effects (e.g., Asian high-yield bonds, construction-linked commodity prices)".
Here's Amundi new forecast for China:
TINA IS STILL AROUND (1127 GMT)
Something tells us that the TINA (there is no alternative) effect is still ready to fuel a buy-the-dip mentality.
In a research report Barclays analysts highlight that a material selling in ETFs on risk-off Monday was followed by significant inflows.
“So once again, the retail ‘army’ is showing animal spirits,” according to Barclays analysts.
Looking at a broader picture, they say now the main categories of investors are fully invested, “which means they are in a position to sell if something goes wrong.”
“But investors also appear to be well hedged, with high skew and put-call ratios both signalling significant protection in place,” they add.
They call this positioning “cautiously long.”
YOU'RE NEVER(GRANDE) GONNA BELIEVE IT (0942 GMT)
The woes of debt-hobbled Evergrande must have slammed the Chinese property sector shares this week, right?
Well not really!
As you can see below, many stocks are up on the week at the exception of course of Sinic Holdings 2103.HK which was suspended from trade on Monday.
Even more surprisingly, Evergrande itself has scored a modest gain.
Maybe it's just some traders taking punts after the huge crashes of the last few months - Evergrande is still down more than 80% this year - but Beijing clearly wants to avoid a complete implosion, so the question is, is it something to build on?
Here's the same table year-to-date:
And here's some reading on the sector:
ANALYSIS-Chinese property debt issuers face 'Evergrande premium' as worries mount nL4N2QP0VF
BANK STOCKS? FORGET CHINA, LOOK AT RATES (0935 GMT)
Higher rates expectations are supposed to boost European bank stocks while China real estate concerns might present a downside risk to the sector.
The big question is what between these two factors is going to prevail.
Credit Suisse analysts see limited direct exposure to China’s troubled Evergrande.
“Data collection from banks’ disclosures, and cross-check with Bank of International Settlements (BIS) data on banks’ cross-border positions, suggests Mainland China and Hong Kong lending by European banks is broadly quite limited,” they say.
JP Morgan does not expect meaningful exposure for European banks, except for HSBC HSBC.L and Standard Chartered STAN.L. Its analysis of syndicated loans data available for major property developers in China suggests “limited involvement.”
Credit Suisse analysts noted that during the 2014-15 slowdown, banks with more emerging markets balance sheet exposure underperformed the STOXX 600 bank stock index .SX7P.
Furthermore, episodes where U.S. 10-year rates rise more than 50bp over 3 months on average “lead to a 10% rise in the bank stock index.”
“SocGen SOGN.PS, ING INGA.AS and Lloyds LLOY.L (all rated Outperform by the team) have performed best on average over three months during these rate episodes,” they add.
The chart below shows the STOXX 600 bank index .SX7P and U.S. 10-year Treasury yields US10YT=RR and their correlation (on 75-day data).
(Stefano Rebaudo and Anushka Trivedi)
EUROPE'S SHARES SLIDE, BUT STILL SET FOR WEEKLY GAINS (0725 GMT)
European shares are falling amid concerns about the fate of embattled property developer China Evergrande Group and a sudden spike in bond yields. But after three days of strong performance, the STOXX 600 is still set for weekly gains.
The top fallers this morning are sport clothing brands and retailers Adidas ADSGn.DE, Puma PUMG.DE and JD Sports JD.L after rival Nike NKE.N reported a Q4 results miss and cut its FY 2022 sales expectations due to a supply chain crunch brought in by months-long factory closures in Vietnam. nL4N2QP2WK
On a brighter note, shares in Astrazeneca AZN.L rise around 3% after the company reported positive results from the PROpel Phase III trial. nASN001OOR
MOVE OVER EVERGRANDE, TIME TO WATCH SOARING BOND YIELDS (0705 GMT)
World markets remain on edge on Friday as simmering concerns about the fate of embattled property developer China Evergrande Group and a sudden spike in bond yields remind investors that the final quarter of 2021 will be tricky to navigate.
European and U.S. stock futures fluctuated between gains and losses after U.S. stocks posted their biggest two-day rise since July.
While a large part of those gains can be attributed to easing concerns about Evergrande contagion, Thursday's spike in yields in the global $60 trillion plus government debt markets raised the prospects of tighter monetary policy sooner than later.
Long-term U.S. Treasury yields have surged the most in 18 months as traders brought forward expectations for the first Fed rate hike to the end of 2022 and the Bank of England opened the door to a 2021 rate increase -- sparking the biggest jump in two-year UK gilt yields since March 2015 GB2YT=RR.
Yield curves from Australia to Germany bear steepened in response and the dollar sprung to the top of its 2021 trading range. While it remains to be seen whether the rise in yields can be sustained, some signs of weakness can be detected in the “buy the dip” trade from investors.
Value stocks, a beneficiary of higher yields, outperformed growth ones on Thursday while FAANG stocks have underperformed broader markets so far this month. And if investors are hoping quiet weekend, think again.
Sunday's election in powerhouse European economy Germany will provide food for thought as Chancellor Angela Merkel steps down after 16 years in charge.
Her successor will play a new role in shaping domestic and broader EU policy and have to steer Germany's economy through a still uncertain post-COVID environment.
Thursday's flash PMIs for September pointed to a sharp slowdown in economic activity from the previous month from rising energy prices and difficulty in sourcing parts and materials, headwinds that are unlikely to abate in the coming days.
Key developments that should provide more direction to markets on Friday:
- ECB's Lagarde says many causes of inflation spike temporary: CNBC nS8N2MM040
- Nike warns on holiday delays, cuts full-year sales estimate nL4N2QP2WK
- Daimler's DAIGn.DE Mercedes-Benz to take a 33% stake in battery cell manufacturer Automotive Cells Company nL8N2QQ0RF
- Germany's IFO survey for September
- Fed speaker corner: Powell, Clarida
EUROPE SET FOR WEEKLY GAINS (0635 GMT)
Futures are pointing to a flat open for European bourses but the STOXX 600 is set for strong weekly gains, with analysts saying investors bought the dip this week after a sharp Monday fall, amid uncertainty around the fate of debt-ridden China Evergrande 3333.HK.
The risk on sentiment was also supported by a rate hike by the Norwegian central bank and hawkish remarks from the Bank of England reinforced market expectations that the Federal Reserve would begin tapering by year end. nL4N2QQ17K
Capping the enthusiasm, property developer Evergrande missed an interest payment deadline on Thursday and has entered a 30-day grace period. nL1N2QP048