From Marc to Market:
Overview: Rising energy prices and yields are helping lift the US dollar and weighing on equities. November WTI has pushed above $76, while Brent traded above $80, and natural gas is up for the fourth consecutive session, during which time it has risen by about 25%. The US 10-year yield has surged to almost 1.53%, up more than 20 bp since the middle of last week. Near 32 bp, the US 2-year yield is at a new 18-month high. European yields are 3-5 bp higher, with UK, Sweden, and Swiss benchmark yields at new three-month highs. Outside of China and Hong Kong, most Asia Pacific bourses finished lower. More than 1% declines were recorded in Australia, South Korea, and the Indian market. The Dow Jones Stoxx 600 in Europe is also off more than 1.5% today, its third consecutive fall. The NASDAQ futures are off 1.6% near midday in Europe, while the S&P 500 futures are trading almost 1% lower. The dollar has popped higher. The euro approached the low for the year (~$1.1665), and the greenback has neared the high for the year against the yen (~JPY111.65). The Antipodeans and Norwegian krone are the weakest of the majors. The euro and Canadian dollar are the most resilient today. The emerging-market currency complex is under pressure, and the JP Morgan EM FX Index is down the third session and seven of the past 10 to move within striking distance of the year's low. Rising yields have sapped gold, trading around $20 off yesterday's high near $1760. Iron ore is giving back yesterday's 2.8% gain, and copper is off 1%. The CRB reached new five-year highs yesterday and extended its advance for the fifth consecutive session.
Asia Pacific
Industrial profits in China rose 10.1% year-over-year in August, down from 16.4% in July. It matches the lows since May 2020. Commodity producers in the coal and oil/gas sectors reported profits above 200% from a year ago. On the other hand, electricity and heat producers reported a 15.3% drop in January-August profits. With the economy losing its forward momentum, the case for easier PBOC policy has been heard, and the squeeze on industrial profits adds to the argument, with a cut in reserve requirements the favored tool.
Local governments reportedly are taking more control of parts of Evergrande, and many observers are shifting the focus from debt to energy. Power outages, higher prices, and factory shutdowns are thought to surpass the finances of the property developer to bedevil Beijing and investors. Two major forces are at work. The first is Beijing's attempt to meet emission targets, and this means to curtail production in the energy and pollution-intensive sectors, like steel, aluminum, and cement. The second is the rise in prices to distribute the scarcity of oil and gas. Utilities have not been permitted to pass on the increase in coal prices to households. According to estimates, roughly 2/3 of China's electricity stems from coal and 70% of the electricity for industry.
Australia's retail sales slumped for the third consecutive month in August. However, the 1.7% month-over-month decline was smaller than expected, and the lockdowns are taking their toll. Department stores and cafes/restaurants saw large slumps, while food and other retailing (on-line?) were more resilient. Sydney is in the 14th week of its lockdown, for example. Australia is ranked at 58th for the percentage of fully vaccinated, just ahead of the US (58th place). New South Wales and Victoria have accelerated their vaccination efforts as they prepare to re-open. Portugal is the most vaccinated at about 84% coverage, and Canada has surpassed the 70% vaccination rate. The Reserve Bank of Australia meets next week. Earlier this month it proceeded with its tapering but extended its bond-buying through mid-February, understood to be a three-month extension.Rising US yields are lifting the dollar against the yen for the fifth consecutive session....
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