• Reserve Bank of India monetary policy decision on Friday
• The U.S. Labor Department releases unemployment and job creation data
• S&P 500 futures rose 0.3% as of 8:16 a.m. in Tokyo. The S&P 500 rose 0.4%
• Nasdaq 100 futures increased 0.4%. The Nasdaq 100 rose 0.6%
• Nikkei 225 futures rose 0.6%
• Australia’s S&P/ASX 200 Index added 0.4%
• Hang Seng Index futures rose 0.6%
• The Japanese yen was little changed at 111.42 per dollar
• The offshore yuan was at 6.4552 per dollar
• The Bloomberg Dollar Spot Index was little changed
• The euro traded at $1.1554
• The yield on 10-year Treasuries was little changed at 1.52%
• Australia’s 10-year bond yield fell about four basis points to 1.57%
• West Texas Intermediate crude fell 0.3% to $77.17 a barrel
• Gold was at $1,763.23 an ounce
• New study shows Covid protection wanes months after second jab.
• How Singapore’s $50 billion financial district will change after Covid.
• Left-wing rage threatens a Wall Street haven in Latin America.
• Dreams of pot tourism in Canada are fading, fast.
• The Prius-hacking Silicon Valley star shaping Toyota’s future.
• First vaccine for malaria is set to be deployed more widely.
• Hacker attacks Amazon’s Twitch, leaking a trove of critical data.
Five Things Asia
1. Virtual Talks
President Joe Biden plans to meet virtually with Chinese President Xi Jinping before the end of the year, following discussions between top envoys for the two countries in Zurich. Details of the meeting between still need to be thrashed out. Prior to the Zurich talks Biden told reporters after returning from a trip to Michigan that he and the Chinese president spoke about Taiwan and had agreed to stick to the existing consensus on managing disputes over the island. In other China-U.S. related happenings, U.S. Secretary of State Antony Blinken criticized China’s recent military maneuvers around Taiwan, urging leaders in Beijing to halt the provocative military flybys for fear of a miscalculation.
2. Making Progress
Asian stocks look set to climb after progress on the U.S. debt-ceiling impasse lifted equities on Wall Street. The dollar advanced and Treasuries were steady as traders await key American jobs data. Futures rose in Japan, Australia and Hong Kong. The S&P 500 and Nasdaq 100 erased losses of more than 1% to close with gains on a possible deal to boost the debt ceiling into December, alleviating the immediate risk of a default but leaving the political fight simmering in Washington.
3. Putin’s Offer
With winter fast approaching and a stunning energy price surge pummeling Europe, Russian President Vladimir Putin chose an opportune moment to use his country’s leverage as an oil and gas superpower. On a chaotic day that saw European benchmark natural gas surge 40% in a few minutes, Putin eased prices by offering to help stabilize the situation — with strings attached. Elsewhere, fuel prices are surging across Asia; the power crisis is fanning inflation fears in India; and here’s what China needs to do to prevent a future energy meltdown.
4. Domino Effect?
China’s property industry has suffered its first default on a dollar bond since developer Evergrande sank deeper into crisis, after Fantasia failed to repay a $205.7 million bond that came due Monday. That prompted a flurry of rating downgrades to levels signifying default. Meanwhile, Chinese Estates, controlled by a long-time backer of embattled Evergrande, offered to take the company private after the stock plunged to an 18-year low. The Lau family taking the Hong Kong real estate firm private represents the biggest retreat yet by a long-time backer of Evergrande and its billionaire Chairman Hui Ka Yan. Lau is part of the so-called “Poker Club” of tycoons who have backed Hui’s ventures over the years.
5. Housing Cure
Hong Kong’s leader outlined plans for a massive urban development on the border with China that appeared designed both to ease the world’s most expensive housing market and prove her own loyalty to Beijing. The major development answers Beijing’s call for the city to ease pressure on the world’s least-affordable housing market that Chinese officials consider a catalyst for 2019’s mass protests. Meanwhile, European companies are discussing relocating staff from Hong Kong, the region’s local chamber of commerce said, as the city commits to a “Covid Zero” strategy that almost every country apart from China is abandoning.
Asian stocks look set to climb early Thursday after progress on the U.S. debt-ceiling impasse lifted equities on Wall Street. The dollar remained higher and Treasuries were steady as traders await key American jobs data. Australian shares advanced, while futures rose for Japan and Hong Kong as well as the U.S. The S&P 500 and Nasdaq 100 erased losses of more than 1% to close with gains on a possible deal to boost the debt ceiling into December. That would alleviate the immediate risk of a default but leave the political fight simmering in Washington. The yield on the U.S. 10-year Treasury note was little changed. Investors are continuing to weigh the economic recovery against inflation risks from a jump in energy costs. ADP employment data beat expectations and a robust U.S. nonfarm payrolls report Friday could cement predictions of a reduction in Federal Reserve stimulus starting next month. nvestors remain on edge as they grapple with a panoply of risks, including monetary-policy tightening to tackle price pressures and the impact on Chinese growth of Beijing’s curbs on a debt-laden property sector. The global energy crunch is also unsettling markets: natural gas prices -- up as much as 40% at one point -- turned lower after Russia’s President Vladimir Putin said the country is ready to help. “We have several things that we are watching right now -- certainly the debt ceiling is one of them and that’s been contributing to the recent volatility,” Tracie McMillion, head of global asset allocation strategy at Wells Fargo Investment Institute, said on Bloomberg Television. “But we look for these 5% corrections to add money to the equity markets.” On the geopolitical front, President Joe Biden plans to meet virtually with Chinese President Xi Jinping before the end of the year. U.S. Secretary of State Antony Blinken criticized China’s recent military maneuvers around Taiwan. Pressed on the financial woes of Chinese property developer China Evergrande Group, Blinken said the U.S. is looking to China “to act responsibly and to deal effectively with any challenges.” Crude oil retreated from a seven-year high in the wake of growing U.S. inventories and after Russia’s signal. In cryptocurrencies, Bitcoin jumped above $55,000. Chinese markets are shut for a holiday and reopen on Friday.
President Joe Biden plans to meet virtually with Chinese President Xi Jinping before the end of the year, a senior U.S. official said, with tensions escalating between the world’s two largest economies. Plans for the meeting were announced on a conference call with reporters following about six hours of meetings Wednesday between White House National Security Adviser Jake Sullivan and a senior Chinese foreign policy adviser, Yang Jiechi, in Zurich. The official called the Zurich discussions more meaningful and substantive than previous meetings between Biden administration officials and their Chinese counterparts. When Sullivan and other U.S. officials sat down with Yang in Anchorage, Alaska, earlier this year the two sides publicly traded barbs over human rights issues. The details for the meeting between Biden and Xi, including the date, still need to be worked out. The two men last spoke on Sept. 9 and discussed what the White House described as guardrails to ensure that competition between the two countries doesn’t veer into conflict. “We continue to believe that leader-level engagement is an important part of our effort to responsibly manage the competition with China -- especially given the coalescing of power in Chinese leadership,” White House Press Secretary Jen Psaki told reporters on Wednesday. “We’re still working through what that would look like when, and of course the final details so we don’t quite have them.” In the last month, China has ratcheted up tension around Taiwan, sending scores of warplanes into the island’s air-defense-identification zone. At the same time, the U.S. and several allies, including Japan and the U.K., have conducted naval drills in nearby waters. The Biden administration this week also pledged to hold Beijing accountable on commitments made in the phase-one trade agreement negotiated by former President Donald Trump and vowed to defend American interests. U.S. Trade Representative Katherine Tai is set to meet with her counterpart, Vice Premier Liu He, as soon as this week to discuss what the U.S. regards as China’s shortfalls in the agreement and Beijing’s harmful industrial policies.
Lithium is having a moment -- and record prices won’t deter the flurry of deals for the key battery metal. A number of acquisitions of lithium miners have been announced in recent months, including a proposed takeover of Millennial Lithium Corp. by the world’s largest battery maker. Industry consultants, investment bankers and analysts see this as just a taste of things to come, even with skyrocketing prices for the silvery white metal that’s a key ingredient to power electric vehicles. Lithium carbonate prices in China are at record highs after a nearly fivefold increase in the past year, Bloomberg NEF analysts said Wednesday in a note. The price of Chinese lithium shipped abroad has also climbed due to tight supply and stable battery demand, though at a slower pace than the domestic surge due to the absence of a spot market, according to the analysts. The rally comes as a global push for less polluting energy sources that has automakers and battery manufacturers racing to secure supplies of so-called future-facing commodities including lithium, copper and nickel. Two Chinese companies sparked a bidding war for Canada’s Millennial, which has lithium assets in Argentina, with Contemporary Amperex Technology Co. eventually outbidding Ganfeng Lithium Co. That bidding war “is just a taste of what’s to come,” said Chris Berry of House Mountain Partners, a Washington-based industry consultancy. “I do see more mergers and acquisitions even at existing pricing.” The type of capital entering the electric-vehicle supply chain is more patient than in past cycles, Berry said. “It’s not just hedge funds riding momentum,” he said. “These are larger strategic players from both inside and outside the EV supply chain positioning amidst the decarbonization thesis.”
Hong Kong Plans Massive City on Chinese Border as Cure for Unrest
Hong Kong’s leader outlined plans for a massive urban development on the border with China that appeared designed both to ease the world’s most expensive housing market and prove her own loyalty to Beijing. The new “Northern Metropolis” will eventually provide homes for as many as 2.5 million residents, or a third of the city’s current population, Hong Kong Chief Executive Carrie Lam said Wednesday in the last annual policy address of her current term. The major development answers Beijing’s call for the city to ease pressure on the world’s least-affordable housing market that Chinese officials consider a catalyst for 2019’s mass protests, which led to the imposition of a national security law. It also puts hard infrastructure behind Chinese President Xi Jinping’s vision for Hong Kong’s closer integration with nearby mainland cities such as Shenzhen and Guangzhou. “I am confident that Hong Kong is much stronger than ever, and I am most convinced that Hong Kong can integrate into the overall development of the country,” Lam told the city’s Legislative Council, which has been purged of opposition members who were either disqualified, resigned in protest or jailed while awaiting trial on national security charges. The announcement of the symbolic new development -- whose name mirrors Guangzhou’s moniker as China’s so-called Southern Metropolis -- was front and center in an occasionally combative policy address that emphasized how China’s imposition of a national security law helped restore political stability to the former British colony. The city’s ever-tightening relationship with the mainland comes as its reputation as an open, international financial hub continues to suffer from strict pandemic travel restrictions and sharper rhetoric on foreign interference -- including what Lam called the “incessant and gross interference in Hong Kong affairs by external forces” in her speech. The speech was derided as a platform for Lam’s re-election, Lo Kin-hei, chairman of the Democratic Party, at a press briefing Wednesday afternoon. “The audience is not the Hong Kong people,” he said. “It’s not the Hong Kong residents but the central government ... A lot of people are moving out of Hong Kong. They are emigrating to overseas. It didn’t address that. It didn’t talk about how they are going to reconcile the problems in Hong Kong.”
McAuliffe Says ‘Unpopular’ Biden Is a Drag on Virginia Race
Virginia gubernatorial Democrat candidate Terry McAuliffe cast President Joe Biden and his party’s lawmakers in Congress as a liability in the final weeks of the campaign, with polls showing a tightening race. “We are facing a lot of headwinds from Washington,” McAuliffe, a former head of the Democratic National Committee, said during a virtual rally with supporters on Tuesday. “As you know, the president is unpopular today, unfortunately, here in Virginia, so we’ve got to plow through.” The remarks were quickly amplified by the Republican National Committee on Twitter as the McAuliffe campaign sought to explain them. “Terry’s point was clearly that Democrats can’t take anything for granted and must turn out to vote this year: Glenn Youngkin is running on a divisive, Trumpian agenda that puts election conspiracy theories and banning abortion first,” McAuliffe’s campaign said in an emailed statement. Biden is buffeted by intra-party fighting over his signature infrastructure package, a resurgent coronavirus pandemic and lingering bipartisan criticism for both his administration’s handling of migrants at the Southern border and the military’s August withdrawal from Afghanistan. A former chair of the Democratic National Committee, McAuliffe’s distancing from the president may be a precursor as to how the party’s congressional candidates will try to save themselves in next year’s mid-term elections.
Sydney Readying to Emerge From 107-Day Covid Lockdown
Like thousands of eateries across Sydney, Bistecca, near the famous Opera House, went from packing in diners to “zero trade” in June as Australia’s biggest city endured one of the world’s strictest Covid lockdowns after an outbreak of the delta variant. Now, with virus-related measures in Australia’s most populous state, New South Wales, to begin easing on Oct. 11, bookings are streaming in. “We are pretty much opening up to almost our full trading hours right off the bat,” said co-owner James Bradey. “It is going gangbusters.” He’s not the only one preparing to get back to business. NSW Premier Dominic Perrottet announced on Thursday that life is set to start returning to normal, after the vaccination rate for people over the age of 16 hit 70%. In the initial reopening stage, non-essential retail stores, pubs and gyms will be allowed to reopen to fully vaccinated patrons, with capacity limits. “We know that this is not just a health crisis, it’s an economic crisis, too,” Perrottet said at a press conference. “If we continue to make the effort and make the sacrifices that we have all been making, New South Wales will be open again.” Schools will begin returning Oct. 18, with vaccines mandatory for teachers and masks required for staff and high school students, state education minister Sarah Mitchell said. Government schools would not mandate vaccines for students, she said. The reopening comes despite the state recording 587 virus cases on Thursdsay, after the government abandoned its formerly strong commitment to a Covid Zero stance. This departure is dividing Australia as some other states remain steadfastly committed to keeping their borders closed.
• OPEC+ meets virtually Monday to review output policy amid a global energy crunch.
• Reserve Bank of Australia policy decision Tuesday
• Rate decision in New Zealand on Wednesday
• Reserve Bank of India monetary policy decision on Friday
• The U.S. Labor Department releases unemployment and job creation data
• Annual Nobel announcements start on Monday, with the Peace Prize being awarded on Friday
• S&P 500 futures rose 0.4% as of 8:04 a.m. Tokyo time. The benchmark climbed 1.2% Friday
• Nikkei 225 futures added 0.3%
• S&P/ASX 200 futures gained 1.6%
• The Bloomberg Dollar Spot Index fell 0.1% Friday
• The euro rose 0.1% to $1.1607
• The British pound advanced 0.2% to $1.3570
• The Japanese yen gained less than 0.1% to 110.99 per dollar
• The yield on 10-year Treasuries declined three basis points to 1.46% Friday
• West Texas Intermediate crude dropped 0.1% to $75.83 a barrel
• Gold rose 0.2% to $1,764 an ounce
• Pandora papers reveal how the wealthy use offshore companies.
• Tesla deliver more than 240,000 cars in a record single quarter.
• Amazon made a robot bet that Apple wouldn’t.
• How Rodrigo Duterte keeps shaking up the Philippines.
• Hong Kong overtakes U.S. in Covid vaccinations after a slow start.
• SoftBank is cutting more deals with fewer staff than ever before.
Five Things Asia
1. Military Pressure
The U.S. called on China to halt “provocative” pressure on Taiwan after a record number of daily incursions by Chinese warplanes, saying the military actions are destabilizing and risk leading to “miscalculations.” People’s Liberation Army aircraft conducted 16 flights near the territory on Sunday, after 39 on Saturday and 38 on Friday, Taiwan’s defense ministry said. Last week Taiwan said it would make it easier for people fleeing a government crackdown in Hong Kong to settle there, while Taipei applied to join Asia-Pacific’s biggest trade pact— both of which upset Beijing. Here’s why Taiwan is the biggest risk for a China-U.S. clash right now.
2. Power Struggles
China’s energy crisis has highlighted weaknesses in one of President Xi Jinping’s top priorities — energy security. To avoid repeats of the chaos ravaging the world’s second biggest economy, the country will probably have to take major steps toward reshaping its grid and power market, building fuel reserves, and adding more renewable and flexible energy sources. China last week ordered its energy companies to secure supplies at any cost. It’s not just China struggling. In Europe the crisis is moving north, as a shortage of natural gas and coal combines with dwindling water supplies. Nordic power prices were five times higher in September than a year ago. Here’s a stock traders’ guide to navigating the global energy crunch.
3. Containing Evergrande
Beijing has stepped up efforts to limit the fallout from a potentially huge restructuring of China Evergrande, signaling it’s willing to prop up healthy developers, homeowners and the real estate market at the expense of global bondholders. Authorities told banks to ease credit for homeowners, bought out part of Evergrande’s stake in a struggling bank to ease contagion, and pumped 460 billion yuan ($71 billion) into the system over five days to ease liquidity.
4. Looking Up
Asian stocks looked set for a solid start to the week after their U.S. peers climbed Friday as prospects for a pickup in growth outweighed concern over inflation pressures. Futures pointed higher in Japan and Australia. Mainland Chinese markets are closed through Thursday for the Golden Week holidays. The S&P 500 rose over 1% Friday after promising results for a Covid-19 pill and positive manufacturing data. Treasuries climbed Friday, taking 10-year yields down to 1.46%, and the dollar fell against every G-10 currency. The yen ticked higher in early trading Monday.
5. Disrupting Recovery
The global economy is entering the final quarter of 2021 with a mounting number of headwinds threatening to slow the recovery from the pandemic recession and prove policy makers’ benign views on inflation wrong. The spreading delta variant continues to disrupt schools and workplaces. U.S. lawmakers are wrangling over the debt ceiling and spending plans. China is suffering an energy crunch and pursuing a regulatory crackdown, while markets remain on edge as Evergrande struggles to survive. Here’s a breakdown of the major risks the world is facing.
Asian stocks looked set for a solid start to the week after their U.S. peers climbed Friday as prospects for a pickup in growth outweighed concern over inflation pressures. Futures pointed to gains in Japan and Australia, and U.S. contracts advanced. Mainland Chinese markets are closed through Thursday for the Golden Week holidays. The S&P 500 rose over 1% Friday after promising results for a Covid-19 pill and positive manufacturing data triggered a rally in companies that stand to benefit from an economic reopening. The dollar extended Friday’s decline against major peers. The yen ticked higher after a record number of flybys by Chinese warplanes close to Taiwan raised tensions in the region. Treasuries climbed Friday, taking 10-year yields down to 1.46%. Asia traders will be watching closely Monday for news on China Evergrande Group, which faces a maturing bond with little wiggle room for payment. Oil traders will monitor comments from OPEC+ which meets virtually amid a spiral higher in crude prices. As investor fears mount about slowing economic growth, U.S. labor data at the end of the week will also be a key focus for markets. Last month global stocks posted their worst performance since March 2020 amid concern about elevated inflation, supply-chain bottlenecks, a global energy crunch and a slowdown in China. Elsewhere, Bitcoin traded around $48,000, largely maintaining its recent gains.
BioNTech SE Chief Executive Officer Ugur Sahin, whose company developed the first Covid-19 vaccine along with Pfizer Inc., said a new formula will probably be needed by mid-2022 to protect against future virus mutations, the Financial Times reported. Anthony Fauci, President Joe Biden’s chief medical adviser, said the U.S. is turning the corner on its latest surge in cases. He urged more Americans to get vaccinated after the country’s pandemic death toll passed 700,000. Delta Air Lines Inc. is yet to decide how to handle a federal mandate that demands certain companies ensure all their workers get inoculated. Indonesia’s daily death count dropped to the lowest level in more than a year, while Russian daily deaths rose to a record. Cases continue to hold at elevated levels in Australia and New Zealand’s biggest cities.
A sprawling investigation by an international consortium of journalists and news organizations uncovered millions of documents detailing how rich and politically-connected individuals across the globe use offshore companies to avoid taxes and hoard wealth. The report published Sunday by the International Consortium of Investigative Journalists linked world leaders including the King of Jordan, Kenyan President Uhuru Kenyatta and former British Prime Minister Tony Blair to entities registered in locales including Panama and the British Virgin Islands that allowed them to hide their ownership of vast assets. Aides and allies of politicians who have railed against corruption and urged reforms, including Pakistan’s Prime Minister Imran Khan, were also shown to have taken advantage of accounting and tax loopholes enabled by offshore entities. More than 600 journalists from 150 news outlets such as The Guardian and The Washington Post worked together to analyze the more than 11.9 million confidential files obtained for the report, making it larger than the organization’s previous Panama Papers investigation.
Here are some other key findings :
• King Abdullah II of Jordan owns international property worth more than $100 million, including a cliff-top mansion on California’s Malibu coast, The Guardian reported. Lawyers for the king told the newspaper that he hadn’t misused any public funds and that he acts with “integrity and in the best interests of his country and its citizens at all times.”
• In a series of tweets, Pakistan’s Imran Khan wrote that his government will investigate “all of our citizens” named in the documents. The report from the ICIJ indicated seven politicians from Pakistan.
• Czech Prime Minister Andrej Babis, who is up for re-election this week, hid his purchase of a $22 million French chateau in 2009 using shell companies. Babis didn’t respond to requests for comment, according to the Washington Post.
• U.S. states including South Dakota, Nevada and Delaware have become havens for financial secrecy, with vehicles known as “trusts” allowing wealthy individuals to remain anonymous in their financial dealings.
* India dragged into energy crisis as coal supplies fall to critical level* • Power plants have 4 days’ stock • Import prices rise sharply • Economic rebound at risk. India has become the latest country to face a severe power crisis that threatens to undermine its economic recovery, with authorities warning that power plants are perilously low on coal. According to India’s power ministry, the 135 thermal power plants of Asia’s third-largest economy had an average of just four days of stocks at the end of last week, down from 13 days of supplies in early August. Of the plants monitored daily, more than half have less than three days of stocks. Power supply shortages have already started to hit the economy in neighbouring China, where the manufacturing sector last month suffered its first contraction since the start of the pandemic. Beijing has ordered state-owned energy companies to secure fossil fuel supplies at all costs to stave off winter shortages, helping to drive up prices for other large importers, including India. “The [Indian] power sector is facing a kind of perfect storm,” said Aurodeep Nandi, India economist at Nomura Financial Advisory and Securities. “You are caught in a situation where demand is high, your supply is low from the domestic side and you haven’t restocked on inventories by importing.” India’s power generators cut coal imports in recent months, as prices surged amid robust global demand, from Europe as well as China. Coal from Indonesia, one of India’s major suppliers, rose from $60 per tonne in March to $200 per tonne in September. Prime minister Narendra Modi’s government has also promoted a policy of Indian economic self-reliance as a guiding principle for its recovery from the pandemic. India has long aspired to reduce its heavy dependence on imported coal, which has been a major contributor to its trade deficit. Yet India’s cheaper domestic coal supplies — nearly 80 per cent of which come from the massive, inefficient state-owned enterprise Coal India Ltd — have failed to keep pace with the surge in domestic demand. The power ministry said at the weekend that heavy rains in coal-mining areas had hit both production and delivery of coal, while plants themselves had failed to build up their stocks prior to the monsoon season. Energy demand was likely to remain high, it added. India’s power consumption in August and September rose sharply to 124.2bn units, up from 106bn units in the same two months in 2019, as a sharp fall in Covid-19 cases — and strong progress in vaccination rates — encouraged many Indians to resume normal activities. The shortage now raises the prospect of imminent, large-scale power cuts, higher consumer electricity prices, or a hit to power generators’ bottom lines, in an economy where coal-fired plants now account for about 66 per cent of power generation. “If the government doesn’t ramp up production or if imports aren’t increased, there will be power cuts,” Nandi said.
* Top Democrats say $3.5tn package can be cut in bid to salvage Biden agenda* Senior Democrats say they are willing to lower the $3.5tn cost of the spending measures in Joe Biden’s signature package to boost the US social safety net, following days of infighting that has threatened to derail the president’s economic agenda. Party leaders have given members another month to agree on the package, which progressives insist must be passed at the same time as a separate $1.2tn bipartisan infrastructure bill. Whips are also trying to forge a cross-party consensus to lift the US debt ceiling before a potentially catastrophic default later this month. Two of the most prominent progressives in Congress — Pramila Jayapal, the representative from Seattle, and Bernie Sanders, the senator from Vermont —said they wanted an agreement with their more conservative colleagues. Jayapal told CNN: “It is going to be somewhere between $1.5tn and $3.5tn, and I think the White House is working on that right now.” Joe Manchin, one of two Democratic senators holding out for a much smaller social spending and climate bill, has said he does not want that package to exceed $1.5tn. Sanders told NBC yesterday that it was “a good negotiating start”, adding: “It’s a big deal, and it’s not going to happen overnight.” However, a bill costing $2tn, a figure Biden reportedly floated to Democrats on Friday, would be not enough, he said.
• Fed Chairman Jerome Powell, Treasury Secretary Yellen to testify at a Senate Banking Committee hearing Tuesday
• European Central Bank President Christine Lagarde speaks Tuesday
• Japan’s ruling party votes to elect leader, Wednesday
• Central bank chiefs Andrew Bailey (BOE), Haruhiko Kuroda (BOJ), Christine Lagarde (ECB) and Jerome Powell (Fed) participate in an ECB Forum panel, Wednesday
• House Financial Services Committee hearing on the Fed, Treasury’s pandemic response, Thursday
• China Caixin manufacturing PMI, non-manufacturing PMI, Thursday
• U.S. manufacturing PMI, Friday
• S&P 500 futures rose 0.2% as of 7:18 a.m. in Tokyo. The S&P 500 rose 0.2%
• Nasdaq 100 futures were little changed. The Nasdaq 100 was little
• Nikkei 225 futures fell 0.6%
• Australia’s S&P/ASX 200 Index futures were little changed
• Hang Seng Index futures fell 0.8% earlier
• The Japanese yen was at 110.78 per dollar
• The offshore yuan was at 6.4623 per dollar
• The Bloomberg Dollar Spot Index rose 0.3% Friday
• The euro traded at $1.1720
• The yield on 10-year Treasuries advanced two basis points to 1.45%
• West Texas Intermediate crude rose 0.6% to $74.41 a barrel
• Gold was at $1,750.41 an ounce
• World’s biggest stock owner gets the nod to crack down on polluters.
• A global traders’ guide to navigating the Evergrande crisis.
• Pelosi vows U.S. infrastructure bill will pass this week.
• These are the biggest supply shocks around the world right now.
• Downfall of HNA chair ends an era of ambition and excess.
• Alibaba nearing investment in Singapore unicorn Ninja Van.
1. Power Crunch
China may be diving head first into a power supply shock that could hit its economy hard, just as the Evergrande crisis sends shockwaves through its financial system. Almost half of China’s 23 provinces missed energy intensity targets set by Beijing and are now under pressure to curb power use. Meanwhile, Evergrande’s electric-car unit will not proceed with a proposed issue of yuan-denominated shares, according to a filing to the Hong Kong stock exchange. The decision adds more uncertainty to the company’s liquidity situation. Elsewhere, China has emerged as the biggest risk to emerging-market investors, who fear Evergrande, virus curbs and consumer spending cuts will further stall the economy. Some are looking to diversify into markets less reliant on China’s growth, such as India and Egypt.
2. Under Pressure
Asia stocks are set to start the week under pressure with traders keeping an eye on Evergrande’s debt crisis and the pace of economic recovery. Futures fell in Japan, where the ruling coalition chooses a new leader this week, who will probably be the next prime minister. Contracts were little changed in Australia and fell in Hong Kong earlier. U.S. contracts were little changed. The Nasdaq Golden Dragon China Index, which tracks some of the Asian nation’s largest firms listed in the U.S., sank on Friday. The S&P 500 edged up to eke out a weekly gain.
3. Getting Serious
Chinese officials have taken steps for months to crack down on cryptocurrencies, with mixed effects — now they’re getting serious. In statements released Friday, authorities said all crypto transactions in China are now banned and they will root out any mining of digital assets. Crypto exchanges Huobi and Binance barred new accounts from China after Beijing's announcement, while Huobi also said it would close existing mainland accounts by the end of the year. Read more about the global fight to control the $2 trillion crypto market here.
4. Tight Race
Olaf Scholz of Germany’s Social Democrats inched ahead of Chancellor Angela Merkel’s conservatives in an unprecedentedly tight election which is still to decide who will lead Europe’s biggest economy. Scholz’s SPD, the front-runner over the final weeks of the campaign, is set to win 26% of the vote, while the Christian Democrats under Armin Laschet are set for 24.5%. Both men said they aim to lead the country’s next government. To cheers from his supporters at party headquarters, the SPD leader said it’s clear that voters want him as chancellor but he still faces months of negotiation and uncertainty before he can make that a reality.
Chinese officials have taken steps for months to crack down on cryptocurrencies, with mixed effects. On Friday, they tried to erase any doubts about their intentions. In statements that were the most extreme and unequivocal so far, authorities on Sept. 24 said crypto transactions in China are banned and they will root out mining of digital assets. Almost immediately, the popular offshore exchange Huobi stopped allowing new users to register with a mainland China phone number and in a statement Sunday said it would “gradually retire existing mainland China user accounts” by Dec. 31. “While this is not a surprise as China has ‘banned’ crypto many times in the past, this time there is no ambiguity,” said Henri Arslanian, PwC crypto leader and partner, on Twitter. “Crypto transactions and crypto services of all kind are banned in China. No room for discussion. No gray area.” The People’s Bank of China issued its Friday missive along with nine other institutions, including the supreme court, the police and the internet and securities watchdogs, a signal that enforcement may come from all corners. It also closed the longstanding loophole that enabled citizens to maintain accounts with offshore exchanges such as Huobi, and forbid the platforms to hire locally for roles like marketing, tech and payment, limiting their ability to serve Chinese customers.
China may be diving head first into a power supply shock that could hit Asia’s largest economy hard just as the Evergrande crisis sends shockwaves through its financial system. The crackdown on power consumption is being driven by rising demand for electricity and surging coal and gas prices as well as strict targets from Beijing to cut emissions. It’s coming first to the country’s mammoth manufacturing industries: from aluminum smelters to textiles producers and soybean processing plants, factories are being ordered to curb activity or -- in some instances -- shut altogether. Almost half of China’s 23 provinces missed energy intensity targets set by Beijing and are now under pressure to curb power use. Among the worst hit are Jiangsu, Zhejiang and Guangdong -- a trio of industrial powerhouses that account for nearly a third of China’s economy. “With market attention now laser-focused on Evergrande and Beijing’s unprecedented curbs on the property sector, another major supply-side shock may have been underestimated or even missed,” Nomura Holding Inc. analysts including Ting Lu warned in a note, predicting China’s economy will shrink this quarter. The worsening power crunch in China -- perhaps overshadowed by the attention on whether Evergrande will default on its mammoth debts -- reflects extremely tight energy supply globally that’s already seen chaos engulf markets in Europe. The economic rebound from Covid lockdowns has boosted demand from households and businesses as lower investment by miners and drillers constrains production. But China’s energy crisis is partially of its own making as President Xi Jinping tries to ensure blue skies at the Winter Olympics in Beijing next February and show the international community he’s serious about de-carbonizing the economy.
The world’s biggest owner of publicly traded stocks, Norway’s sovereign-wealth fund, is about to get the political go-ahead to insist that all companies in its portfolio have clear targets for cutting CO2 emissions. Norway’s Labor Party, which this month won elections that focused on the country’s fossil-fuel dependence, has made clear it wants to embrace more aggressive environmental policies. That includes providing a more stringent framework for Norges Bank Investment Management. The $1.4 trillion fund should now commit to net-zero carbon-dioxide emissions by 2050, Espen Barth Eide, Labor’s climate spokesman, told Bloomberg. It’s a goal that was enshrined in the 2015 Paris Agreement as an essential step toward preventing catastrophic temperature rises. Norway’s reluctance until now to sign up its wealth fund, which owns about 1.5% of the world’s stocks, has drawn condemnation from climate activists. But as scientists warn that temperatures are rising at a much more dangerous pace than previously feared, the mood -- even in oil-dependent states like Norway -- is changing. “We want the fund to use active ownership strategies to achieve net-zero across the companies in the portfolio,” Eide said in an interview. For now, Norway’s wealth fund still holds stakes in some of the planet’s biggest greenhouse-gas emitters, including ExxonMobil Corp. and Chevron Corp., according to the latest regulatory filings compiled by Bloomberg. The fund itself has previously sought permission from Norway’s parliament to exit all oil stocks for diversification purposes. But it was only allowed to do a partial divestment. Eide said he’s not expecting to ask the fund to dump fossil-fuel stocks from one day to the next. But he said oil companies without ambitious net-zero goals will be in the crosshairs. They’ll need to have “credible and accountable plans,” he said. Labor’s plan to have the wealth fund target net zero follows a government-commissioned report that provided a list of recommendations on climate risk. It advised introducing carbon-reduction goals for the fund consistent with the Paris agreement. Labor is still in talks with potential coalition partners and has yet to form a government. But it’s likely to get its way on the net-zero target, given its dominance in parliament. Martin Skancke, the lead author of the climate-risk report, said that for big emitters, net-zero should encompass so-called Scope 3 targets, which include the emissions of end users.
The easing of U.S. and U.K. travel restrictions is breathing new life into European airline stocks. British Airways owner IAG SA has been the star of the show in the last two weeks, soaring 21% after the White House said America would open up to vaccinated foreigners and the U.K. relaxed coronavirus testing requirements for fully jabbed arrivals. Air France-KLM and Deutsche Lufthansa AG have also rallied strongly, as have budget carriers such as Ryanair Holdings Plc. But investors are divided on whether the gains can last and the industry has been a laggard for a long time. European airlines remain about 25% below pre-pandemic levels, underperforming sectors like industrials and retail, which are up as much as 30% from where they were back then. The catalyst of air-travel reopening could be just what they need for a more sustained revival, though the possibility of fresh restrictions is a constant risk. Investors should look “very seriously” at so-called reopening sectors like travel, said Alan Custis, head of U.K. equities at Lazard Asset Management. “The opportunities now, one would argue are much, much better, perversely, than they would have been probably if the pandemic hadn’t happened.”
That’s because excess capacity in aircraft, hotel rooms and restaurants has been eliminated, Custis said in an interview. “There’s been a sea change.” Positive news is starting to gather pace. The relaxation of U.S. rules led to a surge in bookings from Europe to the U.S. Air France-KLM reported a spike in Christmas bookings, while Lufthansa was upgraded at Goldman Sachs.
Kim Yo Jong, the sister of North Korean leader Kim Jong Un, reached out to South Korea for the second time in as many days, saying Pyongyang would consider taking part in another inter-Korean summit and declaring an end to the war if Seoul would adopt a less hostile policy. The countries are still technically at war after the 1950-53 conflict ended in an armistice rather than a peace treaty. Kim’s statement follows one issued Friday saying South Korean President Moon Jae-in’s proposal to officially declare an end to the Korean War is an “interesting and good idea.”