MARKET WRAPS
Stocks:
European stocks slumped Monday, declining on fears over China's
struggling property sector as well as the Chinese effort to rein in
commodity prices.
The broad retreat came amid concerns over property developer
China Evergrande Group. Market participants increasingly believe
that Beijing will let Evergrande fail and inflict losses on its
shareholders and bondholders. The company's debt burden is the
biggest for any publicly traded real estate management or
development company in the world.
Shares of Evergrande, which said Sept. 13 it was facing
unprecedented difficulties, tumbled 12% in Hong Kong to their
lowest level in a decade. The city's Hang Seng Index slid by 3.4%.
Mainland Chinese markets were closed for a holiday.
"Everyone is looking at Evergrande and saying 'has the time come
for a major default in that area, and then the potential for
contagion into the broader property sector?'" said Edward Park,
chief investment officer at Brooks Macdonald. "It's an imminent
risk now rather than being a theoretical risk as it has been for
the past few years."
Other factors weighing on markets Monday included a natural-gas
shortage in Europe that has prompted the U.K. government to hold
emergency talks with energy suppliers, Mr. Park said.
Shares on the move:
Prudential lost 5.9% in London after the insurer said it planned
to raise 22.49 billion Hong Kong dollars, equivalent to around $2.9
billion, by issuing new shares.
The biggest Stoxx 600 gainer was Deutsche Lufthansa which rose
4% after announcing a EUR2.1 billion stock sale to repay its
bailout.
The continued rout in iron-ore futures sent miners including
Anglo American and Rio Tinto sharply lower, as worries about the
world's second-largest economy mounted with questions surrounding
the ability of property developer China Evergrande to make two
interest payments this week.
Data in focus:
German producer prices rose sharply again in August, and
Commerzbank said the end of the upward trend is still a long way
off. Prices were 12% higher than a year ago.
Higher energy and intermediate product prices were once again
the main drivers of the upsurge, Commerzbank's senior economist
Ralph Solveen said.
Intermediate products were 17.1% more expensive than a year ago,
meaning the steep upward trend is unbroken, he said. This strong
inflation in intermediate products is driving up prices for
consumer goods, which are almost 2% higher than a year ago, Solveen
said.
This increase is likely to continue in the coming months, both
at producer and consumer levels, Commerzbank forecasts.
U.S. Markets:
U.S. stock futures fell, pointing to an extension of recent
losses on Wall Street as jitters in China's indebted property
sector rippled into global markets.
The concerns over Evergrande struck at a time when investors had
already grown more cautious about the outlook for stocks, after a
booming rally for much of the year. Money managers have said
valuations look elevated and pointed to signs that the economic
recovery in the U.S. has lost steam amid the spread of the Delta
variant of the coronavirus.
The Federal Reserve will likely use its policy decision
Wednesday to pave the way to pare back some of the stimulus it
lavished on markets last year, he added.
Forex:
The dollar rose broadly ahead of a Fed meeting announcement
Wednesday, when policy makers might say something regarding plans
to taper asset purchases.
"The FX market starts a very busy week with a stronger USD
across the board amid renewed expectations of a hawkish FOMC
meeting outcome on Wednesday on the back of the series of
stronger-than-expected economic data released in the past week,"
UniCredit said.
The Fed is very unlikely to provide details on the composition
and pace of planned tapering, but should "leave little doubt" that
these will be communicated in early November, the bank's analysts
said.
The DXY index earlier hit a four-week high of 93.3620, while
EUR/USD hit a four-week low of 1.1710, according to FactSet.
The pound weakened 0.6% against the dollar to trade at
$1.3670.
Bonds:
European credit markets are likely to withstand a possible bond
taper by the Fed and slower company earnings growth, says
UniCredit.
This week's eurozone economic data is likely to show a slowdown
in economic growth, despite remaining strong, which "might lead to
a slowdown in the pace of corporate earnings growth over the months
to come," analysts at the bank said.
This might keep markets nervous at a time when the Fed seems set
to signal that it will possibly start tapering asset purchases by
the end of the year.
Yet European Central Bank bond purchases are helping to absorb
the still high bond supply, which should limit the risks for
euro-area rates and European credit, they said.
The term premium--the yield premium investors demand for holding
long-dated bonds rather than short-dated ones--is set to increase
in the eurozone as the European Central Bank will buy less assets
next year, said Societe Generale.
"As the ECB is set to absorb less of the EGBs--eurozone
government bonds--and EU issuance next year, there is room for a
further rebuilding of EUR term premium," it said.
Societe Generale recommends investors to remain short duration
and keep five-year to 30-year steepener positions. Societe Generale
added that the retracement of German Bund yields from the July
rally is consistent with the strong recovery in the eurozone
despite remaining uncertainties.
Pimco has long expected the Fed to announce tapering plans at
its December meeting but now it believes "there is a decent chance
that they announce as early as November," said Tiffany Wilding,
portfolio manager and US economist at the asset manager.
Still, because this coincides with the Treasury's so called debt
ceiling "X-date", the date when Treasury will run out of funding,
"we suspect the tapering decision will be delayed to the December
meeting," she said.
Pimco has downgraded real GDP growth estimates since the July
meeting, now expecting 3Q real GDP growth of 3% quarter-on-quarter
compared with 6.5% originally expected.
Commodities:
Oil prices were under pressure early in the week, with most
equities indexes also in the red and the dollar making gains--a
stronger U.S. currency makes dollar-denominated commodities like
oil more expensive for other currency holders.
"For the remainder of the week, the market is likely to be
influenced by further external factors, " said ING's Warren
Patterson, with investors watching the meeting of the Fed later
this week and soaring gas prices.
Gold wavered as investors look ahead to the Fed meeting for
clues about the tapering timeline. The dollar and bond yields were
creeping higher ahead of the meeting, keeping gold prices capped,
Commerzbank said.
Investors will also be looking to see what the Fed says about
interest rates, the bank says. "If Fed Chair Powell can convince
the market that tapering will not be quickly followed by any rate
hikes, gold could recover somewhat in the second half of the week,"
Commerzbank said.
Copper prices fell for a third consecutive day, as investors'
worries about China's Evergrande mounted.
Three-month copper on the LME dropped 1.9% to $9,090.50 a metric
ton, adding to a 4% fall last week. Aluminum also dropped 0.6% to
$2,857.50 a ton while nickel slumped $18,835 a ton.
The woes of heavily indebted property giant Evergrande are
hitting shares of the nation's property companies and sparking
worries about the spillover impact from the company's potential
collapse.
"Investors seem to be preparing for the inevitable collapse of
the entire operation," said Malcolm Freeman, CEO of brokerage
Kingdom Futures. "This has all proved too much for the metals which
are all under attack," he said.
EMEA HEADLINES
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.
Lufthansa Eyes $2.5 Bln From New Capital Raise
Deutsche Lufthansa AG is launching a capital increase worth 2.14
billion euros ($2.51 billion) as the German airline looks to
strengthen its equity position.
Starting Wednesday and running until Oct. 5, just under 6
million new shares will be offered to shareholders, doubling the
current number, at a subscription price of EUR3.58 for each new
share. Lufthansa shares closed Friday at EUR8.21.
Merck KGaA to Invest More Than $3.5 Bln in Electronics
Business
Merck KGaA said Monday that it will invest in its electronics
business over the coming years, as it looks to capitalize on global
growth in demand for semiconductor and display materials.
The German company plans to invest more than 3 billion euros
($3.52 billion) in its electronics division by the end of 2025.
Money will go into research and development, as well as into
capital expenditure on long-term fixed assets, Merck KGaA said.
SSE Says There Has Been No Decision to Break Up Group; Plans to
Accelerate Investment Through 2026
SSE PLC said Monday that there has been no decision to break up
the company after media reports that a significant shareholder was
pushing for a separation of the renewable portfolio from the
regulated networks business. It also said that in November it will
publish details of significantly increased investment plans through
2026.
The energy company said its clear strategic focus is on
renewables and on regulated electricity networks, and these
businesses have exciting growth potential aligned with net zero
targets.
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.
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.
Nigeria's State Oil Firm Incorporated Under New Oil Law
Nigerian National Petroleum Corp., which has been run as a state
enterprise since 1977, is to be incorporated as a company with a
board.
An official statement on Sunday said the Nigerian President
Muhammadu Buhari, who is also the country's Minister of Petroleum,
has directed the incorporation as stipulated in the Petroleum
Industry Act 2021.
Europe's OVHcloud Readies Possible $4.7 Billion IPO
European cloud-services provider OVHcloud plans to launch a
possible initial public offering, the company said Monday, a deal
that could value the business at more than $4.7 billion.
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.
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.
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, preliminary results showed, in an outcome
that would cement President Vladimir Putin's control over his
country's main levers of power.
The initial tally showed pro-Kremlin United Russia won 50% of
votes cast, followed by the Communist Party of the Russian
Federation with 20% and the Liberal Democratic Party of Russia with
around 8%, according to early results from Russia's electoral
commission based on 85% of the ballots counted.
Russia's Deepening Belarus Ties Squeeze Western-Backed
Ukraine
BRUSSELS-Russia's deepening integration with Belarus is
presenting a fresh military threat to Western-backed Ukraine, which
Moscow is trying to draw back into its orbit.
Russia has been conducting large joint military exercises with
Belarus, whose authoritarian leader, Alexander Lukashenko, weakened
by mass street protests and Western sanctions, has ceded much
political and economic control of his country to Moscow. The
exercises, which Russia says are defensive in nature and involve
some 200,000 troops, showcased closer military ties on Ukraine's
northern flank.
GLOBAL NEWS
More CFOs Add Sustainability Targets to Corporate Loans
An increasing number of companies are tying the interest rates
on their corporate loans to environmental and other sustainability
targets as they face pressure from investors and regulators to go
green.
Sustainability-linked loans carry interest rates that adjust
based on whether a company meets a predetermined environmental,
social or governance goal, such as reducing carbon emissions. U.S.
companies took out $83.8 billion in such loans through Sep. 16, up
from $2.5 billion during the same period in 2020, according to
Dealogic, a data provider. U.S. corporate loan volume, including
sustainability-linked loans, was $1.7 trillion as of Sep. 16,
Dealogic said.
Chinese Property Sector Selloff Continues as Evergrande Worries
Mount
Shares of Chinese property developers continued to slide Monday
as worries mounted that China Evergrande Group is moving closer to
a default, signaling the potential for a wider contagion in the
sector.
The Hang Seng Mainland Properties Index plunged more than 6.0%
on Monday morning, taking year-to-date losses to 33%. Evergrande
fell 17% to HK$2.11, while Sunac China Holdings Ltd. slid 10% and
Guangzhou R&F Properties Co. fell 7.3%. Property-management
companies also tracked lower, with Country Garden Services Holdings
Co. retreating 12%.
RBA's Dovish Convictions May Be Challenged by Soaring Shipping
Costs
The Reserve Bank of Australia's confidence that interest rates
won't be raised in the next two years is set to be tested as
soaring shipping costs and a weaker exchange rate push core
inflation back within the target of 2%-3% in 2022.
Marcel Thieliant, senior economist at Capital Economics, said
Monday that shipping costs from China to Australia are now around
250% higher than before the pandemic.
Economy Week Ahead: Central Banks, Home Sales, Purchasing
Managers
The Federal Reserve's policy statement and Chairman Jerome
Powell's press conference on Wednesday highlight this week's slate
of economic news.
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.
As Congress Debates Trillions in Spending, Voters' Minds Are
Elsewhere
FORT WAYNE, Ind.-Sen. Todd Young warned the few dozen
conservatives gathered this month in the basement of a sushi
restaurant that their activism could be the only thing to stop
Congress from spending trillions of dollars of tax money.
"You flooding the zone with your concerns will amplify for
members just how serious they are," the Indiana Republican
said.
Afghan Valley Legendary for Resisting Soviets, Taliban Empties
Out
BAZARAK, Afghanistan-What's missing these days in the capital of
Panjshir, the only Afghan province that resisted the Taliban after
last month's fall of Kabul, are the Panjshiris.
Health Experts Urge Patience on Wider Use of Covid-19 Booster
Shots
WASHINGTON-Top U.S. health officials urged patience on broader
approval for booster shots for the coronavirus vaccine, two days
after a Food and Drug Administration advisory panel recommended
that a booster from Pfizer Inc. and BioNTech SE should be limited
to the elderly and other groups at higher risk.
"Ultimately, the real, proper regimen will turn out to be the
original two shots plus a boost," said Dr. Anthony Fauci, director
of the National Institute of Allergy and Infectious Diseases, said
on NBC's "Meet the Press" Sunday. He said officials' highest
priority is to vaccinate unvaccinated Americans.
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(END) Dow Jones Newswires
September 20, 2021 06:25 ET (10:25 GMT)
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