From Marc to Market:
Overview: Investors continue to sell equities today. The Asia Pacific was a sea of red, with Japan, Australia, and Taiwan off 2% or more. It is the third consecutive weekly loss for the regional benchmark. Europe's Dow Jones Stoxx 600 is off less than 1% through midday and is down around 2.6% this week, the most since January. US futures are 0.5%-0.7% lower, setting the stage for one of the worst weeks of the year. The bond market is subdued. The 10-year US Treasury is soft below 1.49%. It was virtually flat for the week coming into today. European benchmarks are 3-4 bp softer. The dollar is mixed against the major currencies, with the Norwegian krone and British pound posting modest gains. Ironically, on the week, among the poorest performers, the New Zealand dollar (~-1.5%), Norwegian krone (-1.2%), and British pound (-1.2%), have central banks that are seen ahead of the Fed in adjusting monetary policy. Emerging market currencies are mixed, and the JP Morgan Emerging Market Currency Index is slightly higher after falling for the last five sessions. It is off for the fourth consecutive week (~-1%). After a sharp rally yesterday, gold is consolidating above $1750. Oil is trading heavier, but November WTI is holding above last week's close (~$74) that will secure the sixth consecutive weekly advance. Singapore's iron ore futures contract fell almost 2% to give back a third of this week's gains. Copper is nearly 2% higher to pare this week's loss to a little less than 3%. The CRB Index will put the finishing touches on what will likely be the sixth consecutive weekly advance for a cumulative gain of more than 10%.
Asia Pacific
Japan's economic data was a pleasant surprise, and it comes as the formal state of emergency is lifted. The August unemployment rate did not rise as expected and remained at 2.8%. The final manufacturing PMI was revised to 51.5 from 51.2 flash reading, which is still off from the 52.7 in August. The Tankan Survey was stronger than expected. Sentiment among large manufacturers rose to 18 rather than falling to 13 (from 14 in Q2), which is the fifth quarterly improvement and is a new three-year high. Large non-manufacturers did not see the same strength, but it ticked up to 2 from 1. The market had expected it to have slipped lower. Sentiment among small companies remained challenged. Lastly, the all-industries capex plans improved to 10.1% from 9.6%, all besting expectations. The expected LDP-led fiscal stimulus may reach the economy as it enjoys forward momentum in Q4.
The first gain in Australia's manufacturing PMI was not quite as large as initially reported. It stands at 56.8 rather than the 57.3 reading of the flash estimate. Still, it is the first increase since May. Australia's house prices rose 1.5% last month, the same as in August. Prices are up over 20% year-over-year. According to CoreLogic figures, New Zealand's house prices rose 1.4% and are up almost 28% over the past 12 months. Separately, the EU has signaled that it will postpone this month's 12th round of trade talks with Canberra, citing unresolved issues, which seems to be an allusion to the sub-snub. The talks are scheduled to resume in November.
China's markets are closed until next Friday. Late yesterday, Beijing reportedly told its top state-owned energy companies to secure supplies for the winter "at all costs." China's coal and gas inventories are thought to be less than its oil stocks, suggesting that is where the focus may be. China's own coal miners have been instructed to produce at full capacity for the rest of the year, apparently suspending annual quota caps. Still, note that China has committed to stop building coal-fired power plants abroad as the US has pressed. The US Justice Department dropped its extradition request for Huawei's Meng, setting the stage for the "prisoner" swap. These are the kind of gestures that may make a Biden-Xi meeting possible, perhaps before the end of the year....
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