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Tag: Equity Markets

  • U.S. economy seen growing at about a 2.2% annual rate in the July-September quarter, according to real-time New York Fed estimate

    U.S. economy seen growing at about a 2.2% annual rate in the July-September quarter, according to real-time New York Fed estimate

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    The U.S. economy could expand at about a 2.2% annual rate in the current quarter, according to a revamped real-time estimate from the New York Federal Reserve released Friday.

    According to the weekly New York Fed’s Staff Nowcast, the economy has been on an upward trend since late July.

    The regional Fed bank had discontinued the real-time estimate during the pandemic. The New York Fed said the series will now be available weekly.

    The New York Fed’s estimate is much lower than the Atlanta Fed’s GDPNow model, which shows growth could expand at a 5.6% annual rate in the current quarter.

    Economists say the strength of the economy will be critical going forward in deciding whether the Federal Reserve needs to continue to raise its policy interest rate to cool inflation.

    The Fed has been expecting the economy to slow in the second half of the year. Fed officials forecast only 1% growth for 2023. In the first six months of the year, U.S. gross domestic product is averaging about a 2% growth rate.

    If the economy reaccelerates, it is likely that inflation will also move higher. Fed officials had been hoping that slower economic growth would continue push down inflation.

    Faster growth means “you are probably going to get some inflation numbers that aren’t going to be as good as people were anticipating,” said James Bullard, the former president of St. Louis Fed president and now dean of Purdue’s business school.

    “There is some risk that the Fed will have to go a little bit higher” even than the one more interest rate hike that the central bankers have penciled in this year, he said, in a recent CNBC interview.

    The first official government estimate of third-quarter growth won’t be released until Oct. 26.

    The picture of the health of the economy painted by U.S. GDP statistics can change quickly.

    The growth estimates for the first half of the year could be revised at the end of September when the Commerce Department releases benchmark updates to GDP data.

    The sharp revisions are one of the reasons why the Fed typically pays more attention to the unemployment rate and the inflation data.

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  • U.S. household wealth rises to record $154.28 trillion in second quarter

    U.S. household wealth rises to record $154.28 trillion in second quarter

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    The numbers: Total U.S. household net worth rose $5.5 trillion to a record $154.28 trillion in the second quarter, the Federal Reserve said Friday. This is the third straight quarterly increase.

    Key details: The gain was boosted by a $2.6 trillion gain in stocks. The value of real estate holdings rose $2.5 trillion in the three months.

    Household debt rose at a 2.7% annual rate in the second quarter. Mortgage debt grew at a 2.8% annual rate.

    Big picture: The health of the consumer has been a big factor in the surprising strength of the U.S. economy this year. Talk of a recession has vanished and the economy seems to be strengthening as the year progresses.

    Market reaction: Stocks
    DJIA

    SPX
    were higher in Friday trading while the 10-year Treasury yield
    BX:TMUBMUSD10Y
    rose to 4.26%.

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  • Nasdaq falls for 4th straight session as Apple weighs on technology stocks

    Nasdaq falls for 4th straight session as Apple weighs on technology stocks

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    U.S. stocks finished mostly lower on Thursday with the Nasdaq Composite leading the way down as investor sentiment cratered in the face of concerns that the Federal Reserve may keep interest rates higher for longer. The technology-heavy Nasdaq
    COMP,
    -0.89%
    fell 123 points, or 0.9%, to end at 13,748, while suffering its four consecutive sessions of losses. The Dow Jones Industrial Average
    DJIA,
    +0.17%
    was up 0.2%, and the S&P 500
    SPX,
    -0.32%
    dropped 0.3%. Apple shares
    AAPL,
    -2.92%
    were down for a second day, after the Wall Street Journal reported that China had banned government officials from using iPhones for work purposes. In U.S. economic data, initial jobless benefit claims fell by 13,000 to 216,000 in the week ended Sept. 2, the U.S. Labor Department said Thursday. This is the lowest level since mid-February.

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  • Why crude-oil rally can’t be ignored by investors — or the Fed

    Why crude-oil rally can’t be ignored by investors — or the Fed

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    Central bankers like to focus on core inflation readings, which strip out food and energy prices, but that doesn’t mean that they, or investors, will be able to ignore a renewed surge in crude-oil prices.

    In a Thursday note, DataTrek Research observed that the correlation between energy prices and the core reading of the consumer-price index has returned to levels seen in the 1970s and 1980s. It stands at 0.62 since 2020, compared with an average of 0.68 in those prior decades, and well above its long-run average of 0.31. A reading of 1.0 would mean the measures were moving in perfect lockstep. (See table below.)


    DataTrek Research

    Core measures of inflation typically strip out volatile items like food and energy. While that often leads to eye-rolling by commentators who note that food and energy make up a big chunk of what consumers spend money on, the logic behind the move holds that such items are less responsive to monetary policy.

    Policy makers put more emphasis on the core reading for a better read on what they can influence. The core personal-consumption expenditures, or PCE, index, for example, is often described as the Federal Reserve’s favored inflation indicator.

    But that doesn’t mean rising energy or food prices can be ignored. Energy, after all, is an input, and can have an influence on overall prices.

    “Recent data says energy prices hold more sway on core inflation than any time since the 1970s/1980s, so rising oil prices are a legitimate concern for both the Fed and capital markets. Food inflation fits the same bill,” said DataTrek co-founder Nicholas Colas in the note.

    Oil prices have been on a tear this summer, with the rally accelerating after Saudi Arabia announced earlier this week it would extend a production cut of 1 million barrels a day through the end of the year, with Russia also pledging to extend a supply cut.

    West Texas Intermediate crude
    CL00,
    +0.48%    ,
    the U.S. benchmark, extended a winning streak to nine days on Wednesday, while Brent crude
    BRN00,
    +0.60%    ,
    the global benchmark, rose for a seventh straight day. Both grades ended at 2023 highs Wednesday before pulling back modestly in the Thursday session.

    The surge in crude threatens to further drive up fuel prices, including gasoline and diesel.

    And rising oil prices this week got a chunk of the blame from investors and analysts for a pickup in Treasury yields as market participants began to pencil in a longer stretch of higher interest rates — or weighed the possibility the Fed may need to deliver more monetary tightening. That’s also contributed to a rise in the U.S. dollar, with the ICE U.S. Dollar Index
    DXY,
    a measure of the currency against a basket of six major rivals, hitting a six-month high.

    U.S. stocks have weakened in the face of rising yields, with technology and growth shares, which are particularly rate-sensitive, leading the way lower. The Nasdaq Composite
    COMP
    was on track for a 2% decline so far this holiday-shortened week, while the S&P 500
    SPX
    has pulled back 1.4% and the Dow Jones Industrial Average
    DJIA
    has lost 1%.

    “With oil prices rising again, we got to wondering about the spillover effects of this move on inflation. Will pricier crude derail recent disinflationary trends?” Colas wrote.

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  • What’s missing for investors in new $60 billion corporate borrowing blitz

    What’s missing for investors in new $60 billion corporate borrowing blitz

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    Another big corporate borrowing blitz to kick off September has gotten under way, but this one isn’t looking like the rest.

    Instead, the flurry of new bond issues shows how the Federal Reserve’s higher interest rate environment has begun to seep in a year later, by making major companies far more hesitant to tap credit for longer stretches.

    “The…

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  • How one big stock-market investor is positioning for a decade of inflation

    How one big stock-market investor is positioning for a decade of inflation

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    With the threat of inflation back at the forefront for many investors, there’s one large stock-market investor positioning for it to be a decade-long phenomenon. In a note posted to the firm’s website, Chief Investment Officer William Smead of Phoenix-based Smead Capital Management, which oversees $5.83 billion in assets, said “we are loaded with inflation beneficiary stocks like oil and gas stocks and useful real estate.” The firm likes home builder D.R. Horton DHI; Simon Property Group SPG, a real estate investment trust…

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  • U.S. stocks end lower as tech sector drops sharply amid rising bond yields

    U.S. stocks end lower as tech sector drops sharply amid rising bond yields

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    U.S. stocks finished lower Wednesday, with shares of technology companies dropping sharply, as the S&P 500 booked back-to-back losses amid a rise in Treasury yields. The Dow Jones Industrial Average DJIA fell 0.6%, while the S&P 500 SPX dropped 0.7% and the tech-heavy Nasdaq Composite COMP sank 1.1%, according to preliminary data from FactSet. Information technology was the S&P 500’s worst-performing sector on Wednesday with a loss of around 1.4%. In the U.S. bond market, the yield on the 10-year Treasury note rose for a third straight day on Wednesday to 4.289%, according to Dow Jones Market Data.

    …

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  • A recession could be nine months away, according to this telltale gauge

    A recession could be nine months away, according to this telltale gauge

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    The roughly $25 trillion Treasury market first began flashing this telltale sign that a U.S. recession likely lurks on the horizon almost a year ago, according to Bespoke Investment Group.

    It was late October of 2022 when the 3-month Treasury yield BX:TMUBMUSD03M first eclipsed the 10-year Treasury yield BX:TMUBMUSD10Y, resulting in an “inversion” of a key part of the yield curve that’s been a reliable predictor of past recessions.

    Where…

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  • AMC stock tumbles after filing prospectus supplement for the sale of up to 40 million shares

    AMC stock tumbles after filing prospectus supplement for the sale of up to 40 million shares

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    Shares of AMC Entertainment Holdings Inc. AMC tumbled 13.9% toward the lowest price seen since January 2021 after the movie theater operator disclosed an equity distribution agreement in which the company could sell up to 40 million common shares. That would represent up to 7.7% of the common shares outstanding. The shares sales, if any, may be “at the market offerings” or could be to sales agents through block trades. The stock, which underwent a 1-for-10 reverse stock split on Aug. 24, was on track to open at the lowest price seen during regular-session hours since Jan. 15, 2021. It has tumbled 66.7% over the past three…

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  • How the U.S. housing market got stuck in the ’80s

    How the U.S. housing market got stuck in the ’80s

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    The Federal Reserve’s inflation fight has been particularly brutal for anyone not already a U.S. homeowner before interest rates and mortgage rates rose to 15-year highs.

    With mortgage rates around 7.2% to kick off the post–Labor Day period, the difference between the rates on a new 30-year home loan and on all outstanding U.S. mortgage debt (see chart) has not been so wide since the 1980s.

    It’s the 1980s again in the U.S. housing market.


    Glenmede, FactSet

    “Generally, climbing interest rates curb demand and cause housing prices to fall,” Glenmede’s investment strategy team wrote, in a Tuesday client note, but not this time.

    Instead, U.S. homes remain in critically low supply after more than a decade of underbuilding, and with most homeowners who already refinanced at low pre-pandemic rates being “reluctant to leave their homes,” wrote Jason Pride, chief of investment strategy and research, and his Glenmede team.

    Also, while homes prices have come off their prepandemic highs, they still were fetching $416,000 in the second quarter, based on median sales prices, above $358,700 in the fourth quarter of 2020, according to U.S. Census and HUD data.

    “Until the supply gap is filled by new construction, home prices and building activity are unlikely to decline as meaningfully as they normally would given the headwind from rising rates,” the Glenmede team said.

    Read: Housing affordability is now at its worst level since 1984, Black Knight says

    The Glenmede team, however, does expect more pressure on consumers in the coming months, particularly as student-loan payments resume in October and if the Fed keeps interest rates high for a while, as increasingly expected. The benchmark 10-year Treasury yield
    BX:TMUBMUSD10Y,
    which underpins the U.S. economy, was back on the climb at 4.26% Tuesday.

    Meanwhile, shares of home-vacation rental platform Airbnb Inc.
    ABNB,
    +7.23%
    rose 7.2% on Tuesday, after the Labor Day weekend, and 66.4% higher on the year so far, according to FactSet.

    Don’t miss: New York City cracks down on Airbnb and other short-term-rental listings

    Shares of Invitation Homes Inc.
    INVH,
    -0.91%    ,
    which grew out of the last decade’s home-loan foreclosure crisis to become a single-family-rental giant, were up 14.3% on the year, according to FactSet.

    Dallas Tanner, CEO of Invitation Homes, said he expected “the rising costs and the burden of homeownership” to continue to benefit his company, in a July earnings call. The company recently bought a portfolio of about 1,900 homes and has been snapping up newly constructed homes. Companies can borrow on Wall Street at much lower rates than individuals.

    Stocks closed lower Tuesday, with the Dow Jones Industrial Average
    DJIA
    off 0.5%, and the S&P 500 index
    SPX
    0.4% lower and the Nasdaq Composite Index
    COMP
    down 0.1%, according to FactSet.

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  • Manchester United’s stock suffers record selloff after report that sale of club is off

    Manchester United’s stock suffers record selloff after report that sale of club is off

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    The U.S.-listed shares of Manchester United PLC suffered a record beating Tuesday, after a report that the iconic English football club was set to be taken off the market.

    Manchester United MANU UK:MNL fell 18.2% on the day to log its biggest one-day selloff since the company went public in August 2012. The previous record drop was 13.8% on March 12, 2020, at the outset of the coronavirus pandemic.

    The…

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  • Dow closes down 200 points as bond yields, oil prices jump

    Dow closes down 200 points as bond yields, oil prices jump

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    U.S. stocks closed lower Tuesday after the long Labor Day weekend, as bond yields and oil prices climbed. The Dow Jones Industrial Average DJIA shed about 195 points, or 0.6%, ending near 34,642, according to preliminary FactSet data. The S&P 500 index SPX dropped about 0.4% and the Nasdaq Composite Index COMP fell 0.1%. Investors returned from the long weekend in a less bullish mood on weaker economic data from China and Europe, but also with more clouds on the horizon in oil markets. Oil prices CL00 closed at the highest level since November on Tuesday, after Saudi Arabia and Russia opted to extend oil supply production…

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  • U.S. factory orders plunge in July after four straight gains

    U.S. factory orders plunge in July after four straight gains

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    Orders for U.S. manufactured goods fell a sharp 2.1% in July, the Commerce Department said Tuesday. This is the first decline after four straight monthly gains.

    Economists surveyed by the Wall Street Journal were expecting a 2.3% fall in July.

    Excluding transportation, orders rose 0.8% in July after a 0.3% gain in the prior month.

    Economists said that higher interest rates are putting pressure on business equipment spending.

    Durable-goods orders fell 5.2 % in July, unrevised from the data that was released on Aug. 24. Non-durable goods orders rose 1.1%. 

    Orders for nondefense capital goods, excluding aircraft, rose 0.1% in July, also unrevised from prior estimate. 

    U.S. stocks
    DJIA

    SPX
    were trading lower on Tuesday following the long holiday weekend.

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  • U.S. stock futures slide as sour news on global economy hits sentiment

    U.S. stock futures slide as sour news on global economy hits sentiment

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    U.S. stock index futures slipped early Tuesday as rising bond yields defied dour economic news from China and Europe.

    How are stock-index futures trading

    • S&P 500 futures
      ES00,
      -0.19%
      dipped 20 points, or 0.4%, to 4502

    • Dow Jones Industrial Average futures
      YM00,
      -0.07%
      fell 119 points, or 0.3%, to 34763

    • Nasdaq 100 futures
      NQ00,
      -0.38%
      eased 95 points, or 0.6%, to 15421

    On Friday, the Dow Jones Industrial Average
    DJIA
    rose 116 points, or 0.33%, to 34838, the S&P 500
    SPX
    increased 8 points, or 0.18%, to 4516, and the Nasdaq Composite
    COMP
    dropped 3 points, or 0.02%, to 14032. U.S. markets were closed on Monday for the Labor Day break.

    What’s driving markets

    U.S. traders returned from the Labor Day holiday with global markets in a generally risk-off mood after more disappointing news from the world’s second biggest economy.

    A Caixin survey showed China’s service sector expanded in August at its slowest pace in eight months, providing further evidence that the country’s post-pandemic recovery is faltering.

    Also, a eurozone survey showed output in the bloc contracting at its fastest pace in nearly three years.

    Asian and European bourses mostly turned lower, affecting U.S. equity index futures.

    “Sentiment has turned downbeat again on China as fresh brushstrokes are painted on the picture of its slowing economy,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

    “The data has overshadowed relief that the struggling property giant Country Garden
    2007,
    -0.98%
    has managed to make key interest payments on its debt, reducing, for now, concerns about contagion in the financial sector. China appears to be taking one step forward, but two steps back, as optimism one day turns to pessimism the next,” Streeter added.

    Concerns about economic growth might be expected to support sovereign debt markets, but here too the tone was grim, with Treasury yields rising amid concerns recent increases in oil prices
    CL.1,
    -0.35%
    –though down a bit on Tuesday — may revive inflationary pressures.

    “Oil prices have surged to reach new highs in 2023, a development poised to have significant repercussions on the upcoming August consumer price index reports…[which] presents a fresh challenge for central banks as they continue their diligent efforts to bring inflation levels back in line with their desired targets,” said Stephen Innes, managing partner at SPI Asset Management.

    “This growing concern has notably impacted sovereign bonds, triggering a sell-off primarily driven by heightened inflation expectations. And, of course, stocks do not like the cut of that new inflation jib,” Innes added.

    U.S. economic updates set for release on Tuesday include July factory orders, due at 10 a.m. Eastern.

    Companies in focus

    Blackstone Inc.
    BX,
    -1.77%
    rose 4% in premarket trade, while shares of Airbnb Inc.
    ABNB,
    +0.87%
    were up 5% after S&P Dow Jones Indices announced that both names would gain inclusion in the S&P 500 index. The changes take effect before the start of trading Sept. 18.

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  • Is the Stock Market Open Today? These Are the Trading Hours for Labor Day.

    Is the Stock Market Open Today? These Are the Trading Hours for Labor Day.

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    Is the Stock Market Open Today? These Are the Trading Hours for Labor Day.

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  • As U.S. stock-market investors celebrate soft economic data, is bad news becoming bad news again on Wall Street?

    As U.S. stock-market investors celebrate soft economic data, is bad news becoming bad news again on Wall Street?

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    With second-quarter earnings season now largely behind the market, stock investors have been focusing on the latest economic data. 

    They have, for the most part, been reacting positively to “bad economic news,” or any data that may point to an economic slowdown. 

    It’s been almost nine months since the trend emerged, as softening economic data and lower inflation may mean the Federal Reserve can stop raising interest rates, said Chris Fasciano, portfolio manager at Commonwealth Financial Network.

    Traders in federal-funds futures, as of Friday, are pricing in an over 90% chance that the Fed will hold its policy interest rate unchanged at its September meeting, and a roughly 35% likelihood that the U.S. central bank will raise interest rates by 25 basis points in November. 

    Read: The Fed’s monetary policy has lost some of its potency and interest rates may need to rise much higher as a result, economist says

    U.S. stocks closed the week higher ahead of the Labor Day holiday weekend, after data released Friday indicated a cooling labor market, though there was speculation that a “mirage” concerning the conclusion of summertime jobs may have factored. The U.S. created 187,000 new jobs in August, while the unemployment rate jumped to 3.8% from 3.5%.

    The data support the narrative of a gradual slowdown in the labor market, but there are no signs that the economy is weakening significantly, according to Richard Flax, chief investment officer at Moneyfarm.

    Also read: ‘Near perfect’ jobs report has traders expecting Fed to be done hiking rates this year

    “The economic data has not been bad. It is just softening. If you saw really bad economic data, that wouldn’t be taken particularly positively,” Flax said. 

    Meanwhile, “what we’re experiencing is a rolling recession,” said Jamie Cox, managing partner at Harris Financial Group. “Recession activity actually goes from sector to sector, but it doesn’t translate into this big broad-based decline.”

    However, if investors see a significant decline in the housing and labor markets, that could change the narrative, Cox noted. 

    Read: Fed rate hikes can end now that U.S. job gains are the size of an economy like Australia’s, says BlackRock

    To break the cycle in which bad economic news is good news for stocks, economic data have to be much worse than now, indicating more damage from high interest rates, noted Flax. 

    The trend may also reverse if there is a “meaningful downgrade” of corporate earnings expectations, said Flax. “I think you need to see it when macro data translates into weakened profitability.”

    Investors should also be alert of the possibility that inflation may accelerate again, according to David Merrell, founder and managing member at TBH Advisors. 

    Data showed that the personal consumption expenditures price index rose a mild 0.2% in July, but the yearly inflation rate crept up to 3.3% from 3%, the government said Thursday.

    “Inflation overall has been trending down nicely. But if it starts to kick back up, that could mean bad news becomes bad news now,” said Merrell. 

    If investors start to treat bad economic news as bad news for the stock market, it could put pressure on the 2023 stock-market rally, with the S&P 500
    SPX
    up 17.6% since the start of the year and the Nasdaq Composite
    COMP
    up 34%.

    In the past week, the Dow Jones Industrial Average
    DJIA
    climbed 1.4%, the S&P 500 advanced 2.5% and the Nasdaq gained 3.2%, according to Dow Jones Market Data. The S&P 500 posted its biggest weekly gain since the week ending June 16.

    This week, investors will be expecting data on the July U.S. international trade deficit and the ISM services sector activity for August on Tuesday, weekly initial jobless benefit claims data on Thursday, and the July wholesale inventories data on Friday. They will also tune into the speeches of a number of Fed speakers, looking for clues on whether the central bank is ready to be done with its rates hikes.

    Economic calendar: On this week’s economic-data docket are the Fed Beige Book, factory orders, unemployment claims and more

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  • Wall Street is raising quarterly profit forecasts for the first time in two years, and executives are relaxing about recession prospects

    Wall Street is raising quarterly profit forecasts for the first time in two years, and executives are relaxing about recession prospects

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    After nearly two years of concerns about a recession, growing optimism about the economy is starting to filter down into Wall Street’s expectations for individual companies’ quarterly results, with analysts growing more upbeat about corporate profit in the months ahead

    While expectations for those quarterly results usually trend lower as earnings season arrives, analysts over the past two months have actually nudged their profit forecasts higher for the first time in two years, according to a FactSet report released Friday….

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  • Airbnb, Blackstone to join S&P 500, while Deere will replace Walgreens in S&P 100

    Airbnb, Blackstone to join S&P 500, while Deere will replace Walgreens in S&P 100

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    Shares of investment giant Blackstone Inc. and vacation-home rental platform Airbnb Inc. rallied after hours on Friday after both won the nod to join the S&P 500 index
    SPX
    later this month.

    The announcement, from S&P Dow Jones Indices, said that the change would take hold before the start of trading on Monday, Sept. 18. The move, among others announced Friday, will “ensure each index is more representative of its market-capitalization range,” according to a release.

    Airbnb
    ABNB,
    +0.87%
    currently has a market value of $83.98 billion, and its shares are up 64.7% so far this year. Blackstone
    BX,
    -1.77%    ,
    currently worth $129.29 billion, has seen its stock rise 43.6% year-to-date.

    Shares of Airbnb and Blackstone were up 5.7% and 4.8%, respectively, after hours on Friday.

    Blackstone and Airbnb will replace Lincoln National Corp.
    LNC,
    +2.14%
    and Newell Brands Inc.
    NWL,
    +1.23%
    in the index, S&P Dow Jones Indices said on Friday. In the process, Lincoln and Newell will join the S&P SmallCap 600.

    Blackstone in July said it had reached $1 trillion in assets under management, aided by a growth trajectory that it said had outpaced its private equity rivals.

    “We’ve established an unparalleled global platform of leading business lines, offering over 70 distinct investment strategies,” Chief Executive Stephen Schwarzman told analysts. “We believe our clients view us as the gold standard in alternative asset management.”

    Meanwhile, Airbnb last month said that travelers were seeking longer stays and bigger properties in pricier areas, as the rebound in travel endures despite a tidal wave of inflation last year. The company’s second-quarter results and third-quarter sales forecast topped Wall Street’s estimates.

    Meanwhile, S&P 500 member Deere & Co.
    DE,
    +1.94%
    will replace Walgreens Boots Alliance Inc.
    WBA,
    -7.43%
    in the S&P 100, S&P Dow Jones Indices said on Friday. That change also takes hold on Sept. 18. S&P Dow Jones Indices said Walgreens “is no longer representative of the megacap market space” but will stay in the S&P 500.

    Shares of Deere fell 0.2% after hours. Walgreens stock was up 0.4%.

    Don’t miss: Walgreens CEO Roz Brewer steps down with stock at decade-and-a-half low

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  • China ETFs book best day in a month after PBOC vows to support weak yuan with forex reserve ratio cut

    China ETFs book best day in a month after PBOC vows to support weak yuan with forex reserve ratio cut

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    U.S. exchange-traded funds that invest in Chinese stocks notched their best day in a month after China ramped up its efforts to support the country’s flagging currency as investors’ concerns over the economic weakness persist.

    The People’s Bank of China said Friday it will lower the amount of foreign-exchange deposits financial institutions are required to hold for the first time in 2023, a move seen as a bid to shore up the Chinese yuan, which has tumbled this year as the world’s second largest economy has faltered due to a property-market downturn, sluggish domestic consumption, and the ballooning local government debt pile. 

    The Invesco Golden Dragon China ETF
    PGJ,
    which tracks the American depositary shares of companies based in China, rose 3% on Friday, while the KraneShares CSI China Internet ETF
    KWEB,
    which offers exposure to Chinese software and information technology stocks, gained 3.5%. The iShares MSCI China ETF
    MCHI
    advanced nearly 2.2% and the SPDR S&P China ETF
    GXC
    surged 2%, according to FactSet data.

    The iShares MSCI China ETF and the KraneShares CSI China Internet ETF booked their biggest daily percentage advance since August 3, according to FactSet data.

    China’s central bank will cut the foreign-exchange reserve requirement ratio to 4% from 6% beginning Sept. 15. The move is expected to increase the supply of foreign currencies available in local markets, making the Chinese yuan more appealing for domestic investors.

    See: China’s central bank to cut FX reserve ratio

    Based on about $822 billion foreign-exchange deposits in July, the 200-basis-point cut in the reserve requirement ratio could release about $16 billion, which will improve the supply of the U.S. dollar onshore, and could move spot USDCNY lower, said strategists at Citigroup led by Johanna Chua, chief Asia economist.

    “In a broader picture, this can be also seen as part the current round of accelerated policy rollout which works more directly on asset markets. If the accelerated pace [of policy rollout] continues, it may help stabilize sentiment to some extent and prevent outsized bearish moves on China risk assets including the RMB FX,” they wrote in a Friday note.

    The onshore yuan
    USDCNY,

    weakened around 1.7% against the dollar in August, extending its losses for the year to nearly 5%, according to FactSet data. The offshore yuan
    USDCNH,
    -0.03%
    was trading at 7.27 per dollar Friday afternoon.

    See: Chinese Property Stocks Gain on Stimulus Measures

    Friday’s change to reserve requirement ratio came a day after Chinese authorities announced that homebuyers’ minimum down payment will be reduced to 20% for first-time home purchases, and 30% for second-home purchases nationwide, according to a joint statement from the People’s Bank of China and National Administration of Financial Regulation late Thursday.

    Currently, homebuyers in largest cities such as Beijing and Shanghai have a 30% down payment ratio for first homes, and 40% or more for second homes.

    Separately, big banks, such as Industrial & Commercial Bank of China
    601398,
    -1.08%
    and Bank of China
    601988,
    -1.07%    ,
    have said they would cut their one-year yuan deposit rate by 10 basis points to 1.55% and their two-year yuan deposit rate by 20 basis points to 1.85%. The banks also plan to cut mortgage rates to boost consumption and aid the troubled property sector.

    The broader U.S. stock market finished mostly higher on Friday as traders weighed the latest jobs report to conclude the final trading day before the Labor Day holiday weekend. The S&P 500
    SPX
    was up 0.2%, while the Dow Jones Industrial Average
    DJIA
    advanced 0.3% but the Nasdaq Composite
    COMP
    ended nearly flat.

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  • Fed rate hikes can end now that U.S. job gains are the size of an economy like Australia’s, says BlackRock

    Fed rate hikes can end now that U.S. job gains are the size of an economy like Australia’s, says BlackRock

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    The Federal Reserve can probably end its inflation fight now that the U.S. labor market is cooling after generating a historic 26 million jobs in roughly the past three years, according to BlackRock’s Rick Rieder.

    “In fact, 26 million jobs is like adding an economy the size of Australia or Taiwan (including every man, woman, and child),” said Rieder, BlackRock’s chief investment officer in global fixed income, in emailed commentary following Friday’s monthly jobs report for August.

    The August nonfarm-payrolls report showed the U.S. adding 187,000 jobs, slightly more than had been forecast, but also pointing to an uptick in the unemployment rate to 3.8% from 3.5%.

    “Remarkably, 22 million people were hired between May 2020 and April 2022, and 11 million were added to the workforce from June 2021 to May 2023, as the economy has opened up massive amounts of roles for fulfillment,” said Rieder.

    He expects wage pressures to ease, he said, and thinks the “economy may now have fulfilled many of its needs,” which should make the Fed feel more confident in “the permanence of lower levels of inflation,” so that it can slow or stop its interest-rate rises by year-end.

    Hiring in the U.S. has slowed, except in education and in healthcare services, when looking at private payrolls based on a three-month moving average.

    Payrolls are slowing in many sectors, expect education and healthcare


    Bureau of Labor Statistics, BlackRock

    The Fed has already raised interest rates in July to a 5.25%-to-5.5% range, a 22-year high, with traders in federal-funds futures on Friday pricing in only about a 7% chance of a Fed rate hike in September and favoring no hike again at the central bank’s November policy meeting.

    Rieder of BlackRock, one of the world’s largest asset managers with $2.7 trillion in assets under management, said he thinks a Fed pause or outright end to rate hikes could calm markets, even if the Fed, as BlackRock expects, keeps rates high for a time.

    U.S. closed mostly higher Friday ahead of the Labor Day holiday weekend, with the Dow Jones Industrial Average
    DJIA
    up 0.3%, the S&P 500 index
    SPX
    up 0.2% and the Nasdaq Composite Index
    COMP
    0.02% lower, according to FactSet.

    The 10-year Treasury yield
    BX:TMUBMUSD10Y
    was at 4.173%, after hitting its highest level since 2007 in late August, adding to volatility that has wiped out earlier yearly gains in the roughly $25 trillion Treasury market.

    Read on: This hadn’t happened on the U.S. Treasury market in 250 years. Now it has.

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