What To Expect When You Are Expecting

Overview: The markets have stabilized since Monday's panic attack but have not made much headway. China and Taiwan returned from the extended holiday weekend. Mainland shares were mixed. Shanghai rose by about 0.4%, while Shenzhen fell by around 0.25%. Taiwan got tagged for 2%, and Japan's Topix was off 1%. Hong Kong and South Korean markets were closed. Europe's Dow Jones Stoxx 600 is firmer for the second day but is still lower for the week.US indices barely entered the gap left from Monday's sharply lower opening, if at all. The futures are higher today, but the gaps, which appear on the weekly bar charts, are technically important. The bond market is subdued, with the US 10-year yield near 1.33%. European rates are narrowly mixed. The dollar is mostly softer against the majors, with the dollar-bloc and Scandis pushing higher. Sterling and the yen are nursing small losses. The freely accessible emerging market currencies are firm, led by South Africa, Russia, and Mexico. Hungary is the weakest after the central bank delivered a smaller than expected rate hike yesterday. The JP Morgan EM FX index is paring yesterday's 0.3% gain, the largest this month. Gold is consolidating in a narrow range below yesterday's $1781 high. Oil has rebounded, helped by a large drop in US stocks (-6.1 mln barrels. according to API). November WTI fell to around $69.40 yesterday and is more than $2 higher. Iron ore was mixed. China's contract fell.It has risen only once this month. Singapore's contract jumped (~13.6%). Copper is about 2% higher to lead the base metals. 

Asia Pacific

Evergrande reportedly indicated that the yuan interest payment due tomorrow has been "resolved." The details are not clear, and there is a dollar payment due too. There are major concerns. The first is the direct knock-on effects on financial investors and the contagion. This has been what the markets have been focused on. The second is broader and structural. China's property market and its ecosystem are estimated to be nearly a third of China's GDP. Apartments have been used as savings and speculative vehicles. This helps explain the report of ghost buildings, where apartments are owned but unoccupied. It has driven prices higher and made them less accessible to the rising middle class, in a situation that has striking parallels to the surge in house prices in many Anglo-American and northern European countries. 

The Bank of Japan held policy steady, as widely anticipated. It lowered its assessment of exports and production while keeping its overall economic view stable. There was one dissent (Kataoka) from maintaining the yield curve settings (-0.1% short-term and 10-year JGB around zero). The BOJ is at the forefront of central bank efforts to fight climate change. It provided more details of its new program that will start in December, giving zero-cost financing for "green" projects, including loans, bonds, sustainability-linked instruments, and climate-transition financing. The program will run until at least 2031. The loans are for one year and can be rolled over. BOJ Governor Kuroda played down the Evergrande contagion, saying that it looks like an individual company and issue for China's real estate market. At this point, he does not see it turning into a global problem.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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