MARKET WRAPS
Watch For:
Germany PPI; Bundesbank Monthly Report; no major earnings
scheduled
Opening Call:
Worries over China Evergrande's debt problems and caution at the
start of a week packed with central bank meetings, will continue to
hurt sentiment in Europe. In a holiday-thinned Asian session, Hong
Kong stocks slid, the dollar and Treasury yields were firmer and
commodities retreated.
Equities:
European stocks face more losses on Monday after the Hang Seng
fell 4%, with property companies hammered on persisting concerns
over the potential fallout from the financial troubles of
Evergrande.
The Chinese property giant, nursing more than $300 billion in
debt, is seen as likely to default this week and analysts have
warned the looming crunch has potential to shake up financial
markets.
Analysts at UBS said in a note that the potential for market
spillovers will depend on whether Evergrande restructures or fully
liquidates. The analysts wrote what they remained confident that a
restructuring remained the most probable outcome.
Other regional benchmarks in Asia also dropped after Wall Street
closed last week with another decline, as investors anticipated
whether the Federal Reserve will take any action this week to
address the impact of rising inflation.
NAB said a slew of central bank meetings this week, including
the Fed, along with virus developments and the debt problems of
Evergrande will likely instil a cautious tone in financial
markets.
"Those three risks are what's keeping markets relatively
subdued," NAB director of economics Tapas Strickland said.
Aside from the Fed, the Bank of England, Bank of Japan, Swiss
National Bank, Riksbank and Norges Bank have meetings.
Forex:
The dollar and the yen strengthened in Asian trading, with risk
appetite dented as investors awaited this week's Fed meeting, ANZ
said.
CBA said risks for dollar are skewed to the downside. It expects
the Fed to leave policy unchanged and any dovish messaging could
weigh on the U.S. currency.
"The setback in the labor market recovery in August and the jump
in serious infections will encourage the FOMC to wait before it
announces it will taper its asset purchases," CBA said.
GBP/USD has an upside risk if more MPC members come out in
support of curtailing the BOE's asset purchases, CBA said, while
AUD and NZD will be largely driven by dollar direction. CBA added
that USD/JPY is unlikely to be moved by Wednesday's Bank of Japan
meeting.
TD Securities said that sterling has scope for "modest" gains
against the euro as the BOE is unlikely to push back against market
pricing of nearly 40 basis points in interest-rate rises by
end-2022 at this week's policy decision.
Monetary-policy tightening by the BOE "is certainly plausible
next year, " TD said. However, scope for sterling gains against the
dollar will be "limited and constrained." The BOE is unlikely to
make "material changes" and its announcement immediately follows
the Fed decision.
"It doesn't strike us as sufficiently appealing to make the
gamble against the USD with a hawkish risk at the Fed meeting," TD
said, though it sees good prospects for sterling in 2022.
Bonds:
Treasury yields edged higher in Asia, after they hit their
highest levels in at least a week, even as the latest U.S. consumer
survey showed sentiment mired near decade lows.
Capital Economics expects long-dated yields to keep rising in
developed markets, with U.S. sovereign bonds showing the biggest
uptick. "This is based on our view that inflation will prove more
persistent" in the U.S. than in the U.K. or in the EU.
Capital Economics forecasts U.S. inflation weakening in the
short term but "it will ultimately settle at a higher level than in
the eurozone and the U.K. in the next decade."
Bank of America said it expects the Fed this week to more
clearly state that it would be appropriate to start reducing the
pace of asset purchases this year. As for the Fed's much talked
about dot plot, BofA said: "All eyes will be on the 2022 median
dot. We expect it to be unchanged but there is a risk that it shows
half a hike or one hike penciled in."
However, BofA also believes the weak August jobs report will
keep "enough of the 11 participants who penciled in zero hikes for
2022 in June to remain on hold."
Euro-denominated corporate bonds keep outperforming German
government debt as risk-appetite dominates, LBBW said. Measured in
total returns--which comprise capital gains and income--euro
high-yield corporate bonds have a lead of roughly six percentage
points over Bunds so far this year.
Similarly, euro investment-grade corporate paper has also fared
better than Bunds, as they are still two percentage points ahead in
total return terms in the same time frame. This means that "high
appetite for risk is still paying off," LBBW said.
Energy:
Oil prices extended their declines in Asia, as crude production
in the Gulf of Mexico makes a slow comeback from Hurricanes Ida and
Nicholas.
"We see a production loss of about 850,000 bpd for the third
week of September, then going down to 180,000-200,000 bpd in the
fourth week," Rystad Energy said.
The easing of supply disruptions comes amid Covid-19 outbreaks
in crude importers China and Japan, which are likely to hamper the
oil demand recovery, Rystad Energy said.
An update Friday from Baker Hughes revealed that the number of
active U.S. rigs drilling for oil rose for a second straight week,
up 10 at 411. That followed a rise of 7 oil rigs the week before,
but the oil-rig count had dropped by 16 for the week ended Sept. 3,
in the wake of Hurricane Ida.
"As Gulf output recovers, that will put more pressure on WTI,
and that could lead to a pullback in the near term" for oil,
Marshall Steeves, energy markets analyst at IHS Markit, told
MarketWatch. "Beyond that, demand growth will again be significant
to price discovery."
Metals:
Gold futures edged lower, extending Friday's weakness, as the
dollar and Treasury yields strengthened ahead of the Fed policy
meeting.
"Gold is still in trouble. It's worst enemy is surging Treasury
yields and right now that trade is gaining momentum," Oanda said,
adding that bullion remains vulnerable to technical selling and
isn't likely to attract buyers until it falls to the
$1,700-an-ounce mark.
Copper was also lower as China Evergrande's debt crisis weighed
on investor sentiment in Asia. ANZ said China's real-estate
industry accounts for a large proportion of copper and other base
metals consumption, so any property-sector weakness is likely to
spill over into industrial metals.
China's National Development and Reform Commission intends to
release more copper, aluminum and zinc from state reserves into the
market, which should further put downward pressure on metals
prices, ANZ said.
TODAY'S TOP HEADLINES
Democrats Press Ahead With Debt-Limit Vote Amid Standoff With
GOP
WASHINGTON-A partisan fight over raising the government's
borrowing limit is expected to ratchet up this week, with Democrats
moving ahead with a vote in the face of strident GOP opposition,
raising doubts about whether Congress will take action before the
federal government runs out of cash.
The standoff has alarmed Wall Street analysts and business
leaders, who in recent weeks have issued warnings about a rising
risk of a technical default, in which the government might be
unable to make all of its regular payments in full and on time. The
threat of such a default could derail markets and hit U.S. economic
growth.
Junk-Debt Sales Soar Toward Record Year
The $3 trillion market for low-rated companies' debt is having
its best year ever, powered by a rebounding economy and investors'
demand for any extra yield.
U.S. companies including Crocs Inc. and SeaWorld Entertainment
Inc. have sold more than $786 billion of junk-rated bonds and loans
so far in 2021, according to S&P Global Market Intelligence's
S&P. That tops the previous high for a full year in data going
back to 2008.
Covid-19 Vaccinations Boost the Global Economy, but May Not Cure
It Alone
The global recovery is slowing as Covid-19 resurges, spurring
governments to try to raise vaccination rates in hopes of fueling
stronger economic growth.
The thinking is, first, that vaccinations will ease consumers'
worries about infection, prompting them to spend more on travel,
dining out, going to concerts and other activities that involve
proximity to other people. Second, reduced Covid-19 case counts
would mean fewer government shutdowns of ports, factories and other
operations critical to global supply chains.
Natural-Gas Prices Surge, and Winter Is Still Months Away
Natural-gas prices have surged, prompting worries about winter
shortages and forecasts for the most expensive fuel since frackers
flooded the market more than a decade ago.
U.S. natural-gas futures ended Friday at $5.105 per million
British thermal units. They were about half that six months ago and
have leapt 17% this month.
FDA Advisory Panel Votes Against Endorsing Covid-19 Booster
Shots Widely
An advisory panel to the Food and Drug Administration offered a
limited endorsement of booster shots of the Covid-19 vaccine from
Pfizer Inc. and BioNTech SE, recommending injections for people 65
and older or at high risk of severe disease but stopping short of
justifying them for the broader population.
The outside panel's action comes as the dangerous Delta variant
of the coronavirus continues to spread in the U.S. and federal
health officials hope that additional doses of approved vaccines
will sustain protection in people who have been previously
vaccinated.
Europe's OVHcloud Readies Possible $4.7 Billion IPO
European cloud-services provider OVHcloud plans to launch a
possible initial public offering as soon as Monday that could value
the business at more than $4.7 billion, according to people
familiar with the matter.
Based in Roubaix, France, OVHcloud rents computing, storage and
networking capability to users, overseeing a network of dozens of
data centers across North America, Europe, Singapore and Australia.
It also operates its own fiber-optic network globally that the
company claims gives it a competitive edge.
Shell to Start Making Lower-Carbon Jet Fuel as Regulations
Loom
Royal Dutch Shell PLC is the first major oil company to announce
targets for low-emission jet-fuel output and sales as airlines look
to buy more of the fuel to meet climate-change goals and get ahead
of proposed European Union regulations.
The Anglo-Dutch energy giant, a top provider of jet fuel, said
it plans to produce 2 million metric tons of so-called sustainable
aviation fuel a year by 2025, up from none today. It wants SAF to
account for at least 10% of the jet fuel it sells by 2030,
including fuel it sources from outside suppliers. A Shell spokesman
declined to say how much SAF it sells now.
Investment Firms Tiedemann and Alvarium Near Deal to Merge, Go
Public Via SPAC
Investment firms Tiedemann Group and Alvarium Investments Ltd.
are close to a deal to merge and go public through a
special-purpose acquisition company, people familiar with the
matter said.
The combined investment firm would be called Alvarium Tiedemann
Holdings and be valued at roughly $1.4 billion in the deal with the
SPAC Cartesian Growth Corp., the people said. The merger could be
announced as soon as this week.
Prudential Plans to Raise Up to US$2.89B in Hong Kong Share
Offer
Prudential PLC is planning to raise up to 22.49 billion Hong
Kong dollars ($2.89 billion) by issuing new shares as the insurer
looks to redeem high-coupon debt due in six months and invest for
growth.
The U.K. insurer is planning to sell 130.78 million new shares
in the Hong Kong offer and has set a maximum price of HK$172 per
share, Prudential said Monday.
Universal Music Spinoff to Test Investors' Appetite for
Music
Vivendi SE's spinoff of Universal Music Group, expected Tuesday,
will leave the French conglomerate bereft of its most lucrative
business and will test the market's appetite for music as an asset
class.
The world's largest music company, behind stars including Taylor
Swift, Drake and the Beatles, will debut on Amsterdam's Euronext
stock exchange with shares to be distributed to Vivendi's
investors. The move comes amid rising interest in the resurgent
music business as an investment and following a recent boom in the
value of music catalogs, music-streaming companies and technology
for creators.
U.S. Spat With France Shows Challenge of Keeping Allies
Unified
France stepped up its opposition to a security agreement the
U.S. crafted with Australia and the U.K., criticizing the Biden
administration's failure to keep its allies apprised of sweeping
foreign policy initiatives after the pact led to the loss of a
lucrative French submarine deal.
On Sunday, French Foreign Minister Jean-Yves Le Drian discussed
"the strategic consequences of the current crisis" with its
ambassadors from the U.S. and Australia who were recalled for
consultations. French President Emmanuel Macron is also expected to
speak in the coming days with President Biden, officials from both
countries say, in a sign of the depth of France's frustration over
the security pact. Mr. Le Drian likened French anger over the
security pact to the blowback from American allies over the Biden
administration's abrupt and messy withdrawal from Afghanistan.
Russia's Ruling Party Leading in Elections as Putin Looks to
Tighten Grip
MOSCOW-Russia's ruling party appeared on course to maintain its
majority in parliament, early results showed, in an outcome that
would cement President Vladimir Putin's control over his country's
main levers of power.
The preliminary tally showed pro-Kremlin United Russia won 45%
of votes cast, followed by the Communist Party of the Russian
Federation with 22% and the Liberal Democratic Party of Russia with
around 8%, according to early results from Russia's electoral
commission based on 30% of the ballots counted.
U.N. General Assembly Faces Climate Change, Covid-19 and New
Tensions
WASHINGTON-World leaders gathering this week for an annual
United Nations meeting will confront persisting global problems
such as Covid-19 and climate change, while grappling with new
tensions and conflicts dividing U.N. members.
Diplomats and leaders attending the U.N. General Assembly in New
York will also contend with the return to power of the Taliban and
the humanitarian situation in Afghanistan, as well as the challenge
posed by Iran under a new, hard-line president, Ebrahim Raisi.
Write to paul.larkins@dowjones.com
Expected Major Events for Monday
06:00/GER: Aug PPI
07:00/SPN: Jul Trade Balance
08:00/POL: Aug PPI
08:00/POL: Aug Industrial Production Index
08:00/POL: Aug Agricultural prices
09:00/LUX: Aug Unemployment
10:00/IRL: Jul Goods Exports and Imports
10:00/UK: Aug Aluminium Production report
15:59/UKR: 2Q GDP
15:59/GRE: Jul Balance of Payments
16:59/SWI: 1Q Locational & Consolidated banking
statistics
16:59/SWI: 2Q Exchange-traded derivatives statistics
16:59/SWI: 2Q International debt securities statistics
16:59/SWI: 1Q Domestic debt securities statistics
16:59/HUN: 2Q Balance of Payments
16:59/LUX: 2Q Balance of Payments
17:59/POR: Jul Balance of Payments
17:59/POR: Jun ICSG Copper Report
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(END) Dow Jones Newswires
September 20, 2021 00:42 ET (04:42 GMT)
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