August 16, 2023
- Oil steadied as traders weighed concerns over China’s faltering economy against industry estimates pointing to lower US inventories. West Texas Intermediate held near $81 a barrel after losing 2.6% in the week’s first two sessions. Pension manager Caisse de Depot et Placement du Quebec reports midyear investment results this morning. Economic data ahead Wednesday: housing starts at 8:15 a.m. Ottawa time, followed by wholesale trade at 8:30 a.m.
- European equities moved between modest gains and losses as growing pessimism around China’s economic outlook prompted caution among investors. Higher-than-expected UK inflation data also weighed on sentiment. The Stoxx Europe 600 was little changed by 11:25 a.m. in London, after falling to the lowest level in a month on Tuesday. Retailers led gains while energy and travel and leisure stocks were the biggest laggards. Among individual stocks, Admiral Group Plc rallied after reporting results that Jefferies said showed that its UK car business had recovered well. Meanwhile, Balfour Beatty Plc dropped as first-half earnings came in below expectations. Elsewhere, nutrition firm Glanbia Plc advanced after boosting its full-year adjusted earnings guidance.
- US equity futures fluctuated before the Federal Reserve releases minutes from the last policy meeting. A selloff in Chinese assets deepened. US equity futures swung between gains and losses before trading little changed. Shares of Target Corp. jumped in premarket US trading on a strong profit rebound at the retailer, while Tesla Inc.’s stock fell after the carmaker’s second round of price cuts in China this week. US 10-year Treasuries led gains among government bonds on Wednesday on speculation the jump in yields is overdone. The current yield provides a good entry point for investors, according to Steven Major, global head of fixed-income research at HSBC Holdings Plc.
- Asian equities are set for a fourth successive day of losses amid deepening concerns over China’s economy and prospects of the Federal Reserve keeping interest rates higher for longer. The MSCI Asia Pacific Index fell as much as 1.4%, set for its lowest close since May 31. Chinese equities weighed on the regional benchmark as disappointing economic data worsened the recent selloff, while South Korean gauges were the worst performers regionally as foreign investors sold shares amid dollar strength. The MSCI China Index is set to erase all its gains made since last month’s Politburo meeting, reflecting growing anxiety among investors that Asia’s largest economy needs major economic stimulus to boost its consumption and property sector.
- Oil steadied as traders weighed concerns over China’s faltering economy against industry estimates pointing to lower US inventories. West Texas Intermediate held near $81 a barrel after losing 2.6% in the week’s first two sessions. Equity indexes and other commodities fluctuated amid growing jitters in China’s stock market and shadow banking industry, which have added to signs that the Asian giant’s economy is stuttering. Oil has retreated this week following a surge driven by supply cuts from OPEC+ linchpins Saudi Arabia and Russia, and estimates that worldwide crude consumption is running at a record pace. Banks have cut growth estimates for China as the nation’s gargantuan real estate sector flounders.
- Gold edged up from the lowest close since March, supported by a weaker dollar and a decline in Treasury yields from elevated levels. Bullion has been pressured recently as traders weighed prospects for the Federal Reserve to keep monetary policy tight, with Tuesday’s stronger-than-expected US retail figures suggesting the economy can support higher interest rates. That helped Treasury yields rise on Tuesday, before easing today. Spot gold added 0.2% to $1,906.12 an ounce by 11:06 a.m. in London, after ending Tuesday down 0.3%. The Bloomberg Dollar Spot Index edged down. Silver rose, platinum was little changed and palladium retreated.
- The US 30-year mortgage rate rose to 7.16% last week, matching the highest since 2001 and crimping both sales and refinancing activity. The contract rate on a 30-year fixed mortgage rose 7 basis points to 7.16% in the week ended Aug. 11, according to Mortgage Bankers Association data out Wednesday. The gauge of home-purchase applications slipped for a fifth-straight week to the second-lowest level since 1995. The latest jump in borrowing costs presents a fresh headwind for the housing market, just as the sector had been showing signs of finding its footing. The impact from high mortgage rates is two-fold: it restrains demand and keeps many Americans who are sitting on lower mortgage rates from listing their homes.
- Coinbase Global Inc. has gained approval to sell cryptocurrency derivatives directly to retail consumers in the US, the company said Wednesday. Coinbase Financial Markets Inc., a subsidiary of the US’s biggest crypto exchange, has secured approval from the National Futures Association to operate a Futures Commission Merchant and offer access to crypto futures. The offering will launch within weeks, according to a company spokesperson. Coinbase has been working on the derivatives push for some time. It applied for the NFA approval almost two years ago. In early 2022, it bought futures exchange FairX, which was already registered with US regulators. Renamed Coinbase Derivatives Exchange, it currently sends traders to buy futures from third-parties such as brokers. But with the NFA approval, Coinbase will be able to provide these same derivatives to users directly, first via Coinbase’s main app.
- European natural gas fluctuated, with discussions over potential worker strikes in Australia likely to continue next week. Benchmark futures erased earlier gains of as much as 9.9%. The market is closely watching for any developments on labor negotiations at several liquefied natural gas plants, as walkouts at the facilities could disrupt as much as 10% of global supply. The new round of talks between Woodside Energy Group Ltd., an operator of one of the plants, and union officials is expected Aug. 23, according to a person familiar with the matter. While an extension of the talks may cool some market jitters for now, it also prolongs uncertainty. The winter heating season in Europe is set to begin in less than two months.
- Target Corp. shares soared after a surprising profit surge in the second quarter overshadowed the company’s increasingly cautious outlook on the rest of the year. Adjusted earnings more than quadrupled during the quarter ended in late July, the retailer said in a statement Wednesday, reflecting progress in paring the bloated inventories that forced deep markdowns a year ago. That took the sting out of a sales decline, Target’s first in four years, and a cut to its profit outlook for the year as a whole. The upbeat second-quarter performance underscored Target’s ability to navigate a slump in discretionary-goods purchases as consumers channel more spending to services and essentials. For a company that has been getting hammered in the stock market since early 2022, that counted as good news even as Target slashed its outlook.
- Tesla Inc. made its second round of price cuts in China this week, further fueling concerns the carmaker is reigniting a price war. The company reduced the price of Model S sedans and Model X sport utility vehicles in inventory by as much as 70,000 yuan ($9,600) to 754,900 yuan and 836,000 yuan respectively, according to a statement published on its official WeChat account on Wednesday. The move comes just two days after Tesla marked down the Long Range and Performance versions of the Model Y SUV by 14,000 yuan and extended an insurance subsidy for the base version of the Model 3 sedan, keeping the perk in place through the end of next month.
- Two European defense manufacturing giants are seeking to win a 400 billion rupee ($4.8 billion) order to build submarines in India as the South Asian nation looks to strengthen its navy to counter China’s expanding naval presence in the Indo-Pacific region. Indian officials are currently evaluating competing bids to build six of the vessels in the country, senior Indian officials aware of the developments said, asking not to be named because discussions are private. One bid is from Germany’s Thyssenkrupp AG along with Mumbai-based Mazagon Dock Shipbuilders Limited, with the other was submitted by Spain’s Navantia in partnership with private shipyard Larsen & Toubro, the people said. India’s Navy will go for the best and largest transfer of technology that is being offered, the people said. When announcing the tender in July, the Ministry of Defense said it expected substantial technology transfer to Indian shipyards apart from providing the submarines with air independent propulsion — a technology that helps conventional vessels stay underwater for longer.
- Intel Corp. said it’s walking away from its attempt to acquire Tower Semiconductor Ltd., abandoning a $5.4 billion deal after failing to win regulatory approval in time. Intel Corporation has mutually agreed with Tower Semiconductor to terminate the Feb. 2022 agreement, it said in a statement Wednesday. The Israeli firm confirmed the deal was scrapped. The two companies were expected to call off the deal after failing to get Chinese approval, Bloomberg News reported earlier. Tower shares fell as much as 10% in Tel Aviv, the biggest intraday decline since 2020, and were down a similar amount in US premarket trading.
- Indonesia has pushed back the launch of a much-anticipated investment plan underpinning a landmark $20 billion climate financing deal struck with US President Joe Biden last year. Efforts to hammer out the specifics of the Just Energy Transition Partnership, or JETP — which is intended to provide affordable financing to clean up the Southeast Asian nation’s coal-dependent power grid — have been hampered by disagreements over the cost of funds, and by legal and policy tangles. Half of the $20 billion intended to be mobilized was supposed to come from wealthy nations and the other half via large financial institutions like HSBC Holdings Plc and Citigroup Inc., under the Glasgow Financial Alliance for Net Zero.
- FedEx Corp. is pressuring delivery contractors to improve safety after mounting accidents helped trigger a near-tripling of insurance costs over the decade. FedEx is requiring contractors that deliver packages on behalf of the company’s Ground unit to install vehicle cameras and sensors, enhance training and pay penalties if they incur too many accidents, according to FedEx memos to contractors. A low safety score can also expose these delivery companies to competing bids for their routes and jeopardize their entire business. The safety crusade is key to Chief Executive Officer Raj Subramaniam’s plan to combine the company’s Ground and Express units into a seamless network. The company is already testing contractors’ ability in 20 markets to meet the stricter delivery deadlines that come with many Express packages. Unlike the Ground unit, Express directly employs drivers, owns the trucks and has a much better safety record as measured by fatal crashes.
- Norway’s central bank is poised to slow the pace of monetary tightening this week in what may prove its penultimate step in this hiking cycle. Norges Bank will probably raise the benchmark deposit rate by 25 basis points to 4% — the highest level since the 2008 financial crisis — on Thursday, according to all 17 economists in a Bloomberg survey. Having already increased borrowing costs 375 basis points since September 2021, officials meet against the backdrop of favorable inflation data and a rebound in the weak krone. The decision will not be accompanied by new economic forecasts or projections for the rate path, as this week’s meeting is a so-called interim one.