A look at the day ahead in US and global markets by Mike Dolan
After the worst week since March on Wall Street, three issues remain under pressure – a possible US government shutdown this weekend, higher annual oil prices, and heavy notes on Treasury debt sales.
Even before US markets opened on Monday, the ongoing real estate meltdown in China threw another curveball into stock markets there.
Shares of distressed China Evergrande (3333.HK) fell 21.8% after the developer said it was unable to issue new debt due to an ongoing investigation into one of its subsidiaries, dealing a new blow to its restructuring plans.
Country Garden (2007.HK) shares fell more than 7% as investors anxiously awaited the latest dollar bond coupon payment on Wednesday.
Concerns over the simmering real estate issue pushed China’s major bourses (.CSI300) back down 0.6%, but Hong Kong’s Hang Seng Index (.HSI) fell 1.8%.
Perhaps what is worrying foreign investors is the anxiety surrounding the fate of the head of Chinese investment banking at Nomura Bank, Charles Wang Zhonghe, as the Chinese authorities supervising the company’s banking operations ordered him not to leave the mainland.
With global markets also continuing to take a broader hit from the US Federal Reserve’s hawkish comments last week, the MSCI All-Country Index hit its lowest level since June 2 and fell for the seventh straight trading session – its longest losing streak in more than a year.
There appeared to be little hope for an early rebound on Wall Street, as the S&P 500 hit a three-month low on Friday and futures were back in the red again on Monday.
Aside from the Fed, there were several domestic issues looming on the horizon – not least the government shutdown next weekend.
Congress has so far failed to finalize any of its 12 regular spending bills to fund federal agency programs in the fiscal year that begins Oct. 1 — and not reaching an agreement by then does not mean Washington has exhausted the money needed to keep the government running at full capacity.
House Speaker Kevin McCarthy will push an ambitious plan this week to win passage of four big bills, including funding for the military and homeland security, that he hopes will show enough progress for far-right Republicans to win their support for stop-gap spending. invoice.
While economists believe a short-term shutdown lasting just a few weeks will not have a lasting impact on overall growth, some banks, such as Morgan Stanley, feel the timing could impact fourth-quarter data enough to prevent the Fed from providing the only final decision. . A 2023 rate hike was indicated last week.
But with oil prices rising sharply again this month, the inflation picture — which will be charted again later this week using August’s measure of personal consumption expenditures — has become complicated.
US crude prices held on to most of September’s gains, and year-on-year price gains fueling annual headline inflation are now at 15%, their highest annual pace this year so far.
With such a chaotic picture of a government shutdown and a rebound in energy prices, another heavy auction schedule for US Treasury debt begins on Tuesday with the sale of 2-year bonds – followed by a 3-year bond auction on Wednesday and a 7-year bond auction on Wednesday.
US 10-year Treasury yields rose to near 16-year highs above the 4.5% they hit last week. The dollar was pumped across the board, hitting its highest level since March against the pound
There was better news on the labor strike front.
The Hollywood Writers Guild reached a tentative labor agreement with major studios on Sunday, an agreement expected to end one of two strikes that have halted most film and television production and cost California’s economy billions.
And in the technology sector.
Amazon.com ( AMZN.O ) said Monday it will invest up to $4 billion in cash in high-profile startup Anthropic, part of its efforts to compete with growing cloud rivals in the field of artificial intelligence.
Key developments that should provide further guidance to US markets later on Monday:
* Dallas Fed September Manufacturing Survey and Chicago Fed August Business Survey
* Minneapolis Fed President Neel Kashkari, European Central Bank President Christine Lagarde and ECB Governing Council member Isabelle Schnabel speak
* US Treasury auctions for 3- and 6-month bills
Edited by Bernadette Baum
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