Equities continue volatile start to the year
US stocks fell in choppy trading as investors assessed outlooks for earnings growth amid the potential for monetary policy tightening. The rout pushed the Nasdaq Composite over the threshold into correction territory.
The S&P 500 fell for a second day, closing below a key technical support level for the first time since October. The Nasdaq Composite extended losses, sliding more than 10% from a November high. Treasury yields fell across the curve, even as expectations grow that the US 10Y will top 2%. A dollar gauge declined for the first time in four days.
Earnings optimism and dip-buyers vied with speculation that the Fed may deliver more than a 0.25 %pt March interest rate hike to fight inflation.
On the corporate side, Morgan Stanley (MS US) rose after raising its profitability targets and posting a surprise increase in equities-trading revenue, while Bank of America (BAC US) advanced as the bank saw loan growth return with consumers and businesses beginning to take on debt again. Results beyond banks also bolstered sentiment, with UnitedHealth (UNH US) climbing after beating analysts’ highest estimate, and Procter & Gamble (PG US) advanced after raising its sales outlook. – Bloomberg News.
The S&P 500 Index fell 0.97% to 4,532.76, the Dow Jones Industrial Average tumbled 0.96% to 35,028.65, and the Nasdaq Composite Index shed 1.15% to 14,340.26 on Wednesday (19 January).
Hot UK inflation data is prompting traders to double down on rate hike bets, sending benchmark gilt yields to the highest since 2019.
The yield on 10Y UK government bonds soared through 1.30% on Wednesday (19 January) following a report showing that Britain’s inflation rate surged unexpectedly to the highest since 1992.
The UK has been at the forefront of a global bond selloff since mid-December, with yields rising around 0.5 %pts. Debt markets extended losses on Wednesday, with benchmark German yields turning positive for the first time since 2019 and equivalent rates in Treasuries closing in on 2%.
Money markets have almost fully priced a hike in February to 0.5%, a level that could pave the way for the BOE to start reducing its balance sheet by stopping the reinvestment of expired bonds. Further out, they see the key rate rising as high as 1.5% in around 18 months, according to Sterling Over Night Indexed Average forwards.
The yield on 10Y UK bonds was up 6 bps at 1.28% as of 8:25 am in London.– Bloomberg News.
The Stoxx Europe 600 Index climbed 0.23% to 480.90.
Japan needs more money to invest in innovative technology to help it achieve its decarbonisation goals – and one potential solution may be to consider a new form of sovereign debt to fund it.
That is the view of the country’s environment minister, Tsuyoshi Yamaguchi, who was appointed to the office in November. While other officials do not necessarily share his vision for a different type of bond, the minister said Japan’s JPY2t (USD17.5b) green innovation fund, created in 2020, and a potential carbon tax will not be sufficient to get to net zero.
Yamaguchi did not provide details on the type of debt he was envisioning. Japan and the US are the only two countries in the G-7 that have not sold, or plan to offer sovereign green bonds. Japanese companies have, however, been frequent sellers, with the country’s corporate sales doubling to a record USD17b in 2021, data compiled by Bloomberg show.
Japan is aiming to cut carbon emissions by 46% by 2030 vs 2013 levels, and has a target for full carbon neutrality by 2050.
When asked about the debate over the need for nuclear power to achieve the 2050 goal, Yamaguchi said that it was “too soon”, and that the country needed to prioritise safety when restarting nuclear power plants and put renewable energy sources first.– Bloomberg News.
The Nikkei 225 Index rose 0.51% to 27,621.00 in early-Thursday trading, following its loss of 2.80% to 27,467.23 the previous session.
MAINLAND CHINA & HONG KONG
A record-breaking rally in Chinese property bonds is highlighting the huge sums of money primed to flow into the distressed securities should Beijing dial back its industry crackdown.
High yield notes jumped as much as 10 cents on the dollar and Chinese property stocks surged on Wednesday (19 January) after reports that regulators may ease curbs on developers’ access to funds from presold homes.
With a crisis of confidence and financial contagion spreading across the property market this week (ending 21 January), regulatory easing would be welcome reprieve for a credit market that is now saddled with billions of dollars in losses. Even if it is unclear whether Wednesday marks a turning point for the beaten down sector, traders are having a hard time turning down bets that things will improve.
A number of major cities in China and some smaller municipalities tightened supervision over the use of presold property proceeds at the end of last year, local media reported at the time. Such cash generally accounts for almost half of developers’ inflows, according to official data.
Generating liquidity by other means has become increasingly difficult. Home sales and prices are dropping, according to recent economic data. Several of China’s largest banks have become more selective about funding real estate projects by local government financing vehicles. – Bloomberg News.
The Shanghai Composite Index fell 0.33% to 3,558.18 while the Hang Seng Index added 0.06% to 24,127.85.
REST OF ASIA
PT Bukalapak.com (BUKA IJ) has lost more than half its value since raising USD1.5b in Indonesia’s biggest public offering.
The shares closed at a record low IDR352 on Tuesday (18 January), pushing its market value below IDR37t (USD2.6b). That is down 66% from the IDR109t market cap recorded on its first trading day in August. The stock ended a seven-day losing streak to jump 5.1% to IDR370 on Wednesday.
Investors will likely focus on tech companies that would be able to report positive earnings within three to six months after their IPO, said an asset manager. – Bloomberg News.
Australia’s S&P/ASX 200 Index slipped 0.17% to 7,319.90 at the open on Thursday, extending Wednesday’s 1.03% fall to 7,332.50.
South Korea’s Kospi Index was up 0.25% at 2,849.33 in early-Thursday trading. It lost 0.77% to 2,842.28 the previous session.
The Taiwan Stock Exchange Weighted Index fell 0.82% to 18,227.46.
Oil retreated from the highest close since 2014 after US President Joe Biden pledged to continue trying to lower prices and an industry report pointed to a modest increase in US crude stockpiles.
Futures in New York slipped toward USD86.00 a barrel after advancing almost 6% over the past three sessions. While Biden does have some options to address the increase in oil prices, many of them would be limited and likely be short lived. The American Petroleum Institute reported US crude inventories rose by 1.4m barrels last week (ended 14 January), according to people familiar with the data.
West Texas Intermediate for February delivery rose 1.79% to USD86.96 a barrel on the New York Mercantile Exchange. Brent for March settlement closed 1.06% higher at USD88.44 a barrel on the ICE Futures Europe exchange on Wednesday (19 January).
Biden told reporters on Wednesday that the administration would work on trying to increase supplies that are available, adding that it would be hard. That followed comments on Tuesday that authorities were working with oil producing countries to ensure supply rises to meet demand. – Bloomberg News.
The pound is closing in on its strongest level against the euro since 2016, looking past political turbulence to focus on an anticipated Bank of England (BOE) tightening cycle.
Sterling rallied 0.2% to 83.14 pence per euro on Wednesday (19 January), its strongest level since February 2020, even as speculation mounts that UK Prime Minister Boris Johnson could face a leadership challenge. The pound’s next big test is 83 pence, a level it has only briefly dipped below since the 2016 Brexit referendum and what strategists see as a “line in the sand” for the currency that it could struggle to overcome.
While the pound frequently reflected the political twists and turns of Brexit negotiations, the UK currency’s recent gains are all about BOE hikes to counter surging inflation, which are fuelling a rates divergence between it and the European Central Bank. Threats to Johnson’s premiership are mostly seen as having little impact on sterling’s trajectory.
Money markets have almost fully priced a BOE hike to 0.5% next month, with over 100 bps of cumulative tightening wagered for 2022. A no confidence vote in Johnson would be triggered if 54 Conservative lawmakers send letters calling for him to resign. – Bloomberg News.
The US Dollar Index fell 0.23% to 95.510, the euro rose 0.16% to USD1.1343, the pound upped 0.12% to USD1.3612, and the yen gained 0.24% to 114.33 per dollar.
The information published by DBS Bank Ltd. (company registration no.: 196800306E) (“DBS”) is for information only. It is based on information or opinions obtained from sources believed to be reliable (but which have not been independently verified by DBS, its related companies and affiliates (“DBS Group”)) and to the maximum extent permitted by law, DBS Group does not make any representation or warranty (express or implied) as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions and estimates are subject to change without notice. The publication and distribution of the information does not constitute nor does it imply any form of endorsement by DBS Group of any person, entity, services or products described or appearing in the information. Any past performance, projection, forecast or simulation of results is not necessarily indicative of the future or likely performance of any investment or securities. Foreign exchange transactions involve risks. You should note that fluctuations in foreign exchange rates may result in losses. You may wish to seek your own independent financial, tax, or legal advice or make such independent investigations as you consider necessary or appropriate.
The information published is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to subscribe to or to enter into any transaction; nor is it calculated to invite, nor does it permit the making of offers to the public to subscribe to or enter into any transaction in any jurisdiction or country in which such offer, recommendation, invitation or solicitation is not authorised or to any person to whom it is unlawful to make such offer, recommendation, invitation or solicitation or where such offer, recommendation, invitation or solicitation would be contrary to law or regulation or which would subject DBS Group to any registration requirement within such jurisdiction or country, and should not be viewed as such. Without prejudice to the generality of the foregoing, the information, services or products described or appearing in the information are not specifically intended for or specifically targeted at the public in any specific jurisdiction.
The information is the property of DBS and is protected by applicable intellectual property laws. No reproduction, transmission, sale, distribution, publication, broadcast, circulation, modification, dissemination, or commercial exploitation such information in any manner (including electronic, print or other media now known or hereafter developed) is permitted.
DBS Group and its respective directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned and may also perform or seek to perform broking, investment banking and other banking or financial services to any persons or entities mentioned.
To the maximum extent permitted by law, DBS Group accepts no liability for any losses or damages (including direct, special, indirect, consequential, incidental or loss of profits) of any kind arising from or in connection with any reliance and/or use of the information (including any error, omission or misstatement, negligent or otherwise) or further communication, even if DBS Group has been advised of the possibility thereof.
The information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. The information is distributed (a) in Singapore, by DBS Bank Ltd.; (b) in China, by DBS Bank (China) Ltd; (c) in Hong Kong, by DBS Bank (Hong Kong) Limited; (d) in Taiwan, by DBS Bank (Taiwan) Ltd; (e) in Indonesia, by PT DBS Indonesia; and (f) in India, by DBS Bank Ltd, Mumbai Branch.