Stocks rose along with U.S. equity futures Thursday, bolstered by progress on the debt-ceiling impasse in Washington and a rebound in Chinese technology shares. Treasuries dipped as traders await key jobs data.
MSCI Inc.’s index of Asia-Pacific stocks was on track for its biggest gain since Aug. 31. Hong Kong jumped as a technology gaugebounced from a record low. U.S. and European futures rose after the S&P 500 and Nasdaq 100 swung higher on a possible deal to boost the debt ceiling into December.
Russia’s offer to ease Europe’s energy crunch and President Joe Biden plans to meet virtually with Chinese President Xi Jinping also aided sentiment, as did the European Central Bank’s study of a new bond-buying program to prevent any market turmoil when emergency purchases get phased out.
The yield on the U.S. 10-year Treasury note edged up and the dollar was steady. Investors are continuing to weigh the economic recovery against inflation risks from a jump in energy costs. A robust U.S. nonfarm payrolls report Friday could cement predictions of a reduction in Federal Reserve stimulus starting next month.
Crude oil retreated from a seven-year high partly in the wake of growing U.S. inventories. In cryptocurrencies, Bitcoin fluctuated between $54,000 and $55,000. Chinese markets are shut for a holiday and reopen on Friday.
US After Hours RGP +5% rises on earnings while OSMT -23% falls on public offering
Nikkei +0.79% Hang Seng +2.55% CSI +0.67% Shanghai +0.90% Shenzen +2.04%
Eur$ 1.1552 CNH 6.4566 CNY 6.4448 JPY 111.45 GBP 1.3574 CHF 0.9281 RUB 72.4282 TRY 8.8744 WTI476.71 -0.945 Gold 1,757 -0.32% BTC 54,700 -0.45% ETH 3,540 -0.65%
S&P +0.47% Nasdaq +0.65% EuroStoxx +1.28% FTSE +1% Dax +1.23% SMI +0.89%
Macro :
- Schumer Says Hope to Have An Agreement in the Morning
Keep an eye on :
- ADJ GY : Adler Says No Default on Notes Occured, Refutes Viceroy Report
Macro :
- Schumer Says Hope to Have An Agreement in the Morning
Keep an eye on :
- ADJ GY : Adler Says No Default on Notes Occured, Refutes Viceroy Report
- ASR IM : Italy’s AS Roma Appoints Berardi Corporate CEO as Fienga Quits
- BP/ LN : BP Buys NYC Startup That Turns Skyscrapers Into Power Plants
- BVHN SW : Skan Plans IPO on SIX Swiss Exchange in 4Q
- CLASB SS : Clas Ohlson Sept. Sales +6%
- DWNI GY : Davidson Kempner Pulls Deutsche Wohnen Injunction: Handelsblatt
- DWNI GY : Davidson Kempner Pulls Deutsche Wohnen Injunction: Handelsblatt
- ELIS FP : Elis Agrees to Buy Blesk Incare’s Textile Activity in Russia
- ENGI FP : Engie Well on Track to Complete Equans Sale in 2022: Figaro
- EUCAR FP : Avis Rally Creates Record Gap Between Stock and Analyst Targets
- GSK LN : WHO Approves First Malaria Vaccine, Made by Glaxo: NYT
- JTC LN : JTC Proposes Placing Shares to Raise as Much as GBP80 Million
- M US : Activist Jana Calls for Macy’s to Spin Off E-Commerce Unit
- NDX1 GY : Nordex Gets Order From Ukraine for 10 N149/5.X Turbines
- PEXIP NO : Pexip Adds $7.1m in Annual Recurring Revenue in Third Quarter
- SAN FP : Sanofi: Positive Results on Influenza Vaccine W/ COVID-19 Boost
- SU FP : Emerson-Aspen Technology Tie Accelerates Digital Strategy: React
- SIKA SW : Sika Reiterates FY Guidance, Confirms 2023 Targets
- TERB BB : Ter Beke Intends to Buy Sigma Ops in Belgium, Netherlands
- VNA GY : Vonovia Gets More Than 60% of Deutsche Wohnen Voting Rights
>>> Up
* Centrica Raised to Overweight at Morgan Stanley; PT 75 pence
* CompuGroup Raised to Buy at LBBW; PT 80.50 euros
* Edenred Raised to Buy at HSBC
* Edenred Raised to Buy at HSBC
* Enter Air Raised to Buy at BDM; PT 41.80 zloty
* Gem Diamonds Raised to Buy at Berenberg; PT 80 pence
* Hermes International Raised to Hold at HSBC; PT 1,250 euros
* Hochschild Mining Raised to Buy at Berenberg; PT 200 pence
* Jupiter Raised to Buy at Panmure Gordon; PT 305 pence
* Nokia Raised to Buy at OP Corporate Bank; PT 5.90 euros
* Sulzer Raised to Buy at Stifel; PT 105 Swiss francs
* Valeo Raised to Neutral at Citi; PT 25 euros
>>> Down
* Cerved Cut to Hold at HSBC
* Wolters Kluwer Cut to Hold at HSBC
>>> Initiation
>>> Down
* Cerved Cut to Hold at HSBC
* Wolters Kluwer Cut to Hold at HSBC
>>> Initiation
* Argenx ADRs Rated New Buy at Jefferies; PT $362
* BioNTech ADRs Rated New Hold at Jefferies; PT $230
* BioNTech ADRs Rated New Hold at Jefferies; PT $230
* Dunelm Rated New Sell at Investec; PT 1,000 pence
* EasyJet Reinstated Outperform at Exane; PT 900 pence
* Global Blood Rated New Buy at Jefferies; PT $68
>>> Call
* SMCP Scenarios a Positive Post Top Holder’s Default: Jefferies
>>> Call
* SMCP Scenarios a Positive Post Top Holder’s Default: Jefferies
US government bond market specialists warn of fragility in Fed pullout
Concerns remain over gaps in liquidity after weak supports during pandemic-induced instability
US government bond specialists are starting to fret over how the world’s most important market will cope when the Federal Reserve pulls back its pandemic-era support.
The $22tn Treasuries market forms the basis for pricing other assets around the world. It is famed for its liquidity — a broad term meaning it is easy to hop in and out of trades. But on several occasions since Covid-19 first hit, gaps in liquidity have appeared, creating jerky price movements.
When the Fed starts to trim its $120bn-a-month bond buying scheme, possibly as soon as November, some participants fear the lack of once-reliable market support could generate more instability.
The Treasury market system “is primed so that high-frequency traders and primary dealers pull back when there are problems”, said Yesha Yadav, a professor at Vanderbilt Law School in Nashville who studies Treasury market structure and regulation.
“The way this is set up is designed to fail. It is exceptionally fragile,” Yadav said.
The Treasuries market whipsawed in the Covid shock of 2020. That was perhaps the inevitable result of investors globally rushing to reshape portfolios. But central banks and regulators were also alarmed when at one point Treasury prices fell fast — the opposite to typical patterns in times of stress — because liquidity evaporated. More recently, in February, weak take-up of a standard seven-year debt auction sparked a significant move lower in price.
“For folks who have March 2020 and February 2021 fresh in their minds, this does remind people that there are risks for Treasury market functioning as we see the Fed trying to remove themselves from the market,” said Mark Cabana, head of US rates strategy at Bank of America.
Some key responsibility here lies with so-called primary dealers, the 24 financial firms that are tasked with providing a stream of buy and sell prices for Treasuries by the Fed. They include banks such as JPMorgan Chase, Citigroup and Goldman Sachs. Data from the Financial Industry Regulatory Authority suggest they pulled back in February and March last year before the Fed stepped in to stabilise the market.
Primary dealers transact directly with the Treasury department, and they theoretically help backstop the market as buyers when other investors are trying to sell. But Dodd-Frank regulation in the wake of the 2008 financial crisis forced banks to hold more capital on their balance sheets to offset the debt they owned. In response, primary dealers have reduced the amount of debt they carry relative to the size of the Treasury market.
“The banks never were there to catch the falling knife but they certainly did act as a pretty huge liquidity buffer to the marketplace in a way that they can’t or won’t today,” said Kevin McPartland, head of market structure and technology research at Coalition Greenwich.
The Securities Industry and Financial Markets Association, an industry lobbying firm representing big lenders, wrote earlier this year that changing bank balance sheet rules would ensure smooth market functioning.
“Some modest loosening of primary dealer balance sheets would likely help reduce these more frequent bouts of volatility, and we would still have a much safer system” than before the financial crisis, said Tyler Wellensiek, global head of rates market structure at Barclays.
But keeping the rules brings benefits: the capital requirements placed on banks are likely to have prevented major crises in the sector during the coronavirus recession, according to the Bank for International Settlements. And changing capital requirements would potentially put the US in violation of the post-2008 international Basel agreement, said Greg Peters, the co-chief investment officer of PGIM Fixed Income.
As primary dealers have stepped back from their market-making role, hedge funds and high-frequency traders including Citadel Securities, Virtu Financial and Jump Trading have moved into their place. But when markets become volatile, high-frequency trading funds also can pull out.
Data from Coalition Greenwich show that order-book volume — a large portion of which is made up of high-frequency trader activity — has shrunk during recent liquidity glitches. In March last year, average daily order book volume on a relative basis compared to other execution methods dropped to the lowest level since 2014 and has not fully recovered since.
Regulators have discussed making changes to bolster Treasury market liquidity. But progress on all these reforms has been slow and the lack of a centralised Treasury market regulator can cause confusion.
Still, not everyone is expecting a crisis.
“This has been very well telegraphed by the Fed,” said Jan Nevruzi, a strategist at NatWest Markets. That communication is likely to prevent a taper tantrum of the sort seen in 2013.
The Fed’s reverse repo programme — which allows banks to put cash in the US central bank overnight in exchange for Treasuries — can stabilise liquidity in the event of a crisis, said Ellis Phifer, a market strategist at the financial advisory firm Raymond James.
But the reverse repo facility is a backstop, said Edward Al-Hussainy, analyst at Columbia Threadneedle Investments, and not a permanent solution to market functioning.
“This is not a market that is ready for the kind of environment that we’re in where shocks are frequent,” Al-Hussainy said. “We’re seeing events that are supposed to be rare occurring with unsettling frequency.”
SEC head Gary Gensler under fire over crypto regulation
Senior Republican claims chair oversteps authority in seeking more oversight of digital coins
A senior Republican has hit out at Gary Gensler, the chair of the Securities and Exchange Commission, over his attempts to regulate cryptocurrencies, as its defenders increase their opposition to several regulatory proposals.
Tom Emmer, a representative from Minnesota and co-chair of a group of lawmakers interested in blockchain, said he believed Gensler was overstepping his authority with his attempts to expand the SEC’s role in regulating cryptocurrencies.
Emmer’s intervention is part of a broader move by supporters of cryptocurrencies to push back against Democrat-led attempts to increase oversight of the $2tn market.
“All regulators want more jurisdiction and I can’t fault them for that,” Emmer said in an interview with the Financial Times. “But I think Gary Gensler’s vision is much broader, and frankly because of it, he’s having a negative impact — and potentially will have a really big negative impact — on retail investors and opportunities out there that entrepreneurs and innovators might provide.”
Trading in cryptocurrencies and crypto-related products has rocketed in recent years, helping crypto-exchange platforms such as Coinbase achieve valuations of tens of billions of dollars.
But as investment in the area has increased, so has regulatory scrutiny, with regulators warning about the risk of cryptocurrencies being used to carry out fraud and money laundering.
Gensler told Congress on Tuesday that he wanted crypto platforms to be registered with the SEC, adding: “Right now [investors] don’t have the benefit of that basic bargain that we protect people against fraud and manipulation . . . People are going to get hurt.”
Emmer told the FT: “I disagree with [Gensler] strenuously when he suggests that almost all of these [crypto products] are securities. I think the vast majority of cryptocurrency offerings or related offerings are actually currencies or commodities. The SEC is not involved.
“If the SEC were to deem one of these coins a security, the value of that token would plummet. And those retail investors would be seriously hurt — that’s directly the opposite of his mission and his authority.”
Last month Coinbase dropped a plan to launch a new digital asset lending product known as Lend after the SEC warned it would take legal action against such a move.
Other defenders of cryptocurrencies have also begun to push back. Hester Peirce, one of two Republicans on the SEC, told the FT earlier this year that she was worried that Gensler would stymie innovation with his push for new regulation.
Earlier this year the pro-crypto campaign group Fight for the Future organised a public pressure campaign to oppose a measure in the $1.2tn bipartisan infrastructure bill that would force crypto exchanges to report transactions to US tax authorities. The organisation said the campaign generated 40,000 calls to legislators and 10,000 tweets.
Digital asset companies have also set up a range of new lobbying organisations to argue their case on Capitol Hill. Perianne Boring, the president of the Chamber of Digital Commerce, one of those lobbying organisations, said: “As the industry grows and the business model becomes more complex, the industry has to engage more with lawmakers.”
Lobbyists have found a receptive audience in Emmer’s blockchain caucus, which was co-founded by Mick Mulvaney, the former Republican member of Congress and chief of staff to former president Donald Trump, who now advises the Chamber of Digital Commerce.
In recent months, members of the caucus, which covers the political spectrum from the liberal Democrat Ro Khanna to close Trump ally Matt Gaetz, have proposed several bills that would make it easier to trade cryptocurrency.
After Hours Summary: RGP +5% rises on earnings while OSMT -23% falls on public offeringAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: RGP +4.7%, IDT +4.1%, LEVI +3.2%
Companies trading higher in after hours in reaction to news: RKLB +10.7% (selected to launch NASA's Advanced Composite Solar Sail System), LIQT +10.3% (received first oil and gas order through JV in the Middle East), APP +9.1% (agreed to acquire Twitter's [TWTR] MoPub business), MDP +6.7% (agreed to sell National Media Group to IAC's [IAC] Dotdash), SLCA +6.1% (announced strategic review for Industrial & Specialty Products segment), KULR +4.4% (provided update on safe battery transportation partnership with Heritage Battery recycling), IAC +4% (Dotdash unit agreed to purchase Meredith's [MDP] National Media Group), MGI +2.7% (announced partnership with Stellar Development Foundation), TWTR +2.1% (agreed to sell MoPub business to AppLovin [APP]), DNLI +2% (announced results and regulatory progress for ALS development programs), WATT +1.5% (announced availability of 1W Active Energy Harvesting Developer Kit)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: N/A
Companies trading lower in after hours in reaction to news: OSMT -22.9% (announced public offering of shares and warrants), ITAC -2% (announced scheduled completion of merger with Arbe Robotics), AVT -1.5% (disclosed update for distribution relationship with Maxim Integrated)
Closing Stock Market SummaryThe S&P 500 gained 0.4% on Wednesday, overcoming an early 1.3% decline, as stocks turned positive following news of a potential concession on the debt ceiling. The Nasdaq Composite (+0.5%) and Dow Jones Industrial Average (+0.3%) also recouped early losses to close higher, while the Russell 2000 fell 0.6%.
The weak start was driven by an inclination to sell into strength (in this case, Tuesday's gains) amid ongoing issues surrounding supply chain disruptions, raw material shortages/inflation, infrastructure, and the debt ceiling.
There was some relief on the latter after Senate Minority Leader McConnell offered Democrats the option to use normal procedures to pass an emergency debt ceiling extension at a fixed dollar amount into December 2021. In other words, lawmakers could potentially kick the can down the road.
Soon after, it was reported that President Biden and Chinese President Xi will hold an online virtual summit by the end of the year. The positive-sounding headlines were viewed as a good excuse to buy the dip, although the extent of the gains was relatively muted since stocks had already come off session lows before the news.
Nevertheless, eight of the 11 S&P 500 sectors closed higher after each traded lower in the morning. The defensive-oriented utilities (+1.5%), consumer staples (+1.0%), and real estate (+1.0%) sectors led the rebound effort with decent gains. The energy (-1.1%), materials (-0.3%), and health care (-0.2%) sectors closed lower.
Growth stocks generally outperformed value stocks, as the 10-yr yield settled lower by one basis point to 1.52% after peaking at 1.57% overnight. The retracement in yields came despite a better-than-expected ADP Employment Change report, which estimated private sector payrolls increased by 568,000 in September ( consensus 405,000).
Energy prices also did some backpedaling, which might have indirectly influenced the downside move in rates. WTI crude futures fell 1.9%, or $1.47, to $77.50/bbl. Natural gas futures fell 8.5% to $5.73/MMBtu. The U.S. Dollar Index increased 0.3% to 94.21.
Crude futures were pressured by an unexpected build in weekly crude inventories (2.346 mln) and a report from the Financial Times that the U.S. may release fuel from strategic reserves to counter rising oil prices.
Reviewing Wednesday's economic data:
- ADP estimated that private sector payrolls increased by 568,000 in September (consensus 405,000) after increasing by a downwardly revised 340,000 (from 374,000) in August.
- The weekly MBA Mortgage Applications Index fell 6.9% following a 1.1% decline in the prior week.
Looking ahead, investors will receive the weekly Initial and Continuing Claims report and Consumer Credit for August on Thursday.
- S&P 500 +16.2% YTD
- Dow Jones Industrial Average +12.5% YTD
- Nasdaq Composite +12.5% YTD
- Russell 2000 +12.2% YTD
UK households warned of further 30% rise in energy bills next year
Analysts forecast main energy price cap likely to hit £1,660 next April amid surge in wholesale gas prices
Household energy bills in Britain are forecast to rise by at least 30 per cent early next year as wholesale gas prices continue to surge, analysts have warned.
The main energy price cap is expected to climb to £1,660 a year from next April for a household with average consumption that buys both electricity and gas, according to energy consultancy Cornwall Insight. This would be the highest level since records that track domestic energy bills began in 2009.
Cornwall’s prediction will add to concerns over a cost-of-living crisis this winter, with the poorest families likely to be hit hardest. Charities have already warned that some households will be forced into desperate measures such as rationing their heating.
Other analysts have previously calculated that the main price cap could jump by more than 40 per cent when it is next reviewed by Ofgem, the industry regulator, in early 2022.
UK and European wholesale gas prices jumped higher again on Wednesday morning to trade close to 10 times their level at the start of the year over supply concerns as the northern hemisphere heads into the cold weather of winter.
Prices changed course later in the day, however, following suggestions by Russian president Vladimir Putin that his country, one of the biggest gas producers in the world, could increase supplies to western Europe.
Last year the UK consumed around 74bn cubic metres of gas, half of which was imported from countries including Russia, Norway and Egypt, according to OGUK, which represents the UK oil and gas industry.
Britain’s main energy price cap applies to around 11m households and is reviewed by Ofgem every six months. The regulator increased the level of the cap by 12 per cent from the start of October to £1,277.
Prices for a further 4m households that use prepayment meters to buy their energy are governed by a second, more expensive cap that rose by 13 per cent at the start of the month to £1,309.
Households whose fixed-price energy deals have recently come to an end have already faced a sharp jump in their bills running into hundreds of pounds.
Some companies have started marketing new fixed-price deals above £2,000 a year, although customers are advised not to switch.
Cornwall cautioned that consumers could be hit with even higher bills as they will also have to cover the cost of rescuing the 1.7m customers of the 10 energy suppliers that have gone bust since the start of August due to the spike in wholesale gas prices.
Suppliers that rescue the customers of failed businesses are able to pass on their costs via an industry levy that filters through to consumer bills after about 12 months.
Craig Lowrey, senior consultant at Cornwall Insight, said he had not factored in this cost in his latest price cap predictions but he warned the energy market remained “on edge for fresh volatility and further consolidation” among suppliers.