US FINANCIAL MARKET
Stocks Fall as China’s Economy Slows – Wall Street Journal, 8/15/2022
- U.S. stocks and commodity prices fell as slowing growth in China raised concerns about the global economy and demand in the world’s biggest consumer of raw materials.
- Data on factory output, investment, consumer spending and real estate, among other indicators, showed China’s economy stumbled in July, prompting the central bank to cut interest rates.
- The slowdown adds to pressure on the world economy stemming from the war in Ukraine, high energy prices in Europe, financial strains on several emerging-market economies and rising interest rates in the U.S.
- The rally was poised to pause Monday. The S&P 500 and the Dow Jones Industrial Average declined 0.5%, and the Nasdaq Composite was down 0.4% at the open. In a sign of concern about the global economic outlook, the yield on 10-year U.S. Treasurys slipped to 2.793% from 2.848% Friday.
- Brent-crude prices fell 5.2% to about $93 a barrel, and copper dropped 2.8% to about $7,900 a metric ton. China consumes more than 15% of the world’s oil and over half of refined copper globally, so slowing Chinese growth is expected to weigh on commodity markets in the coming months.
- In response to the slowdown, the People’s Bank of China cut two key interest rates by 0.1 percentage point and pumped the equivalent of $59.3 billion into the financial system to goose lending and economic growth.
- Chinese 10-year government bond yields fell to their lowest level since the early months of the pandemic in 2020 at 2.678%, down from 2.755% Friday. The Shanghai Composite Index was flat in a mixed session for stock markets in Asia.
- In Europe, the pan-continental Stoxx Europe 600 hovered around the flat line.
- On the economic front, data from the Federal Reserve Bank of New York showed a decline in factory activity in New York state in August.
Oil Sinks to Six-Month Low on China Outlook, Iran Supply Boost – Bloomberg, 8/15/2022
- Oil extended losses at the start of the week as traders weighed concerns about Chinese demand and the prospect for more Iranian supply on the back of Monday announcements.
- West Texas Intermediate plunged as much as 5.7% to as low as $86.84 a barrel, the lowest in more than six months.
- Oil retreated since China announced a surprise cut in key interest rates on the back of weak economic data, while a nuclear deal with Iran that could boost a tight supply outlook looks closer after announcements on Monday.
- Meanwhile data released on Monday showed China’s apparent oil demand last month was about 10% lower year-on-year, with the economy battered by virus lockdowns and property woes.
Streaming Services Deal With Growing Number of Subscribers Who ‘Watch, Cancel and Go’ – Wall Street Journal, 8/15/2022
- Some 19% of subscribers to premium services—a group that includes Netflix, Hulu, AppleTV+, HBO Max and Disney+, among others—canceled three or more subscriptions in the two years up to June, according to new data from subscriber-measurement firm Antenna. That is up from 6% in the two-year stretch ended in June 2020.
- The average rate of monthly customer defections among premium services in the U.S. was 5.46% in July, up from 4.46% a year ago and 4.05% in July 2020, according to Antenna.
- The percentage of Netflix subscribers who signed up in January and were still subscribers six months later fell to 55% in 2022, compared with 62% in the same period of 2021 and 71% in 2020, Antenna found.
- Loyalty of longtime customers has waned, too: People who have had Netflix subscriptions for two to four years accounted for 18% of cancellations in the second quarter, up from 13% two years ago.
Investors Are Betting Yet Again That Inflation Will Cool – Wall Street Journal, 8/15/2022
- Some investors who took comfort in last week’s moderating inflation figures are leaning further into bets that prices are cresting, a trade that has stung over the past year.
- The July consumer-price index fueled renewed wagers that inflation is more circumstantial than structural and that the Federal Reserve will in response moderate its rapid pace of rate increases. Investors are now projecting a smaller Fed rate increase in September, have continued to price in rate cuts in the first half of next year and have bought up shares of tech companies, which are primed to perform well if rates ease.
- Such moves indicate that many investors still see a relatively quick end to persistently rising prices—even as Fed officials are warning of the need for further rate increases, which could jeopardize stock and bond markets’ recent gains.
- Prevailing bets in derivatives markets predict that inflation will be about 3.3% over the next 12 months. That is precisely where estimates stood this time last August.
- Neel Kashkari and Charles Evans, two regional Fed presidents who aren’t part of the rate-setting committee, argued last week that it will still take more aggressive action to tame inflation.
- Mr. Kashkari, who will vote on Fed policy next year, said the target rate might need to reach 4.4% by the end of 2023.
US ECONOMY & POLITICS
New York Manufacturing Plunges by Second-Most in Data to 2001 – Bloomberg, 8/15/2022
- A gauge of New York state manufacturing activity plunged by the second-most in data back to 2001, with sharp declines in orders and shipments that indicate an abrupt downturn in demand.
- The Federal Reserve Bank of New York’s August general business conditions index slumped more than 42 points to minus 31.3, with the drop just behind that seen in April 2020, a report showed Monday.
- The share of state factories reporting weaker business conditions nearly doubled in August to 43.6% from a month earlier.
- The Fed banks index of orders collapsed to minus 29.6 from 6.2, while the gauge of shipments tumbled to minus 24.1 from 25.3.
- Looking ahead, manufacturers in the state were only slightly upbeat. the six-month outlook index improved to 2.1, from minus 6.2 in July.
- Meantime, the prices-paid index settled back to the lowest since the start of last year, though the bank’s gauge of prices received edged up and remained elevated.
Homebuilders say U.S. is in a ‘housing recession’ as sentiment turns negative – CNBC, 8/15/2022
- Builder sentiment in the market for single-family homes fell into negative territory in August, as builders and buyers struggle with higher costs.
- The National Association of Home Builders/Wells Fargo Housing Market Index dropped 6 points to 49 this month, its eighth straight monthly decline. Anything above 50 is considered positive.
- Of the index’s three components, current sales conditions dropped 7 points to 57, sales expectations in the next six months fell 2 points to 47 and buyer traffic fell 5 points to 32.
- Despite higher costs for land, labor and materials, about 1 in 5 builders in August reported lowering prices in the past month in an effort to increase sales or limit cancellations. The average drop reported was 5%.
- Regionally, on a three-month moving average, builder confidence in the Northeast fell 9 points to 56, and dropped 3 points in the Midwest to 49. In the South it fell 7 points to 63, and in the West, where home prices are highest, it declined 11 points to 51.
U.S. Lawmakers Travel to Taiwan on Heels of Pelosi Visit – Wall Street Journal, 8/15/2022
- A group of U.S. lawmakers flew to Taiwan on Sunday to meet Taiwanese President Tsai Ing-wen, the latest development to raise questions about U.S. intentions regarding the island’s relationship with China.
- The bipartisan congressional delegation, led by Senate Foreign Relations Committee member Ed Markey (D., Mass.), plans to spend two days on the island and is expected to also meet with senior Taiwanese government and private-sector leaders to discuss U.S.-Taiwan relations, regional security, global supply chains and climate change.
- In addition to Mr. Markey, Sunday’s delegation included House members John Garamendi (D., Calif.), Alan Lowenthal (D., Calif.), Don Beyer (D., Virginia), and Aumua Amata Coleman Radewagen (R., American Samoa).
- Beijing is concerned that Mrs. Pelosi’s visit could trigger a “domino effect” of other world politicians traveling to Taipei, which would boost its international standing, potentially encouraging it to formally declare independence, according to the people with knowledge of Chinese thinking.
- Taiwan’s Ministry of National Defense said 28 Chinese planes and vessels carried out maneuvers around the areas near Taiwan on Sunday, with 11 of them crossing the median line in the Taiwan Strait.
EUROPE & WORLD
China Growth Slows Across All Fronts in July, Prompting Unexpected Rate Cut – Wall Street Journal, 8/15/2022
- China’s economy stumbled in July as a two-month boost from easing lockdowns faded, prompting the country’s central bank to unexpectedly cut two key interest rates in an effort to shore up faltering growth.
- One stark sign of China’s economic malaise: One in five Chinese youth, or 19.9%, was unemployed in July, Monday’s figures showed, the highest level since China started publishing such data in 2018.
- The overall jobless rate edged down, however, to 5.4% from 5.5%.
- Data released by China’s National Bureau of Statistics Monday showed industrial production rose 3.8% from a year earlier in July, easing from a 3.9% year-over-year increase in June and well short of the 4.5% growth expected by economists polled by The Wall Street Journal.
- Retail sales, a key gauge of consumer spending, grew 2.7% from a year earlier in July, a weaker reading than the 3.1% recorded in June and the 5.0% increase expected by surveyed economists.
- Average new-home prices in 70 major cities fell 1.67% in July from a year earlier, compared with June’s 1.29% decrease, according to Wall Street Journal calculations based on data released Monday by China’s statistics bureau.
- On a month-on-month basis, average new-home prices fell for an 11th consecutive month. Prices dropped 0.11% in July from June, widening from the previous month’s 0.10% decline, the statistics bureau said.
- Only 30 of the 70 cities recorded a month-over-month increase in home prices in July, down from 31 cities in June.
- Fixed-asset investment slowed in July, rising 5.7% on year in the January-July period, compared with the 6.1% pace recorded in the first half of the year. Economists had expected growth of 6.2%.
- On Monday, the People’s Bank of China cut by 0.1 percentage point two key interest rates and pumped the equivalent of $59.3 billion into the financial system to rev up lending and wider economic growth.
China Restarts Military Drills in Response to Latest U.S. Lawmakers’ Visit to Taiwan – Wall Street Journal, 8/15/2022
- China’s military responded to the surprise arrival in Taiwan of a new delegation of U.S. lawmakers by announcing a resumption of military drills around the island, in the latest flare-up of tensions in the region.
- The Chinese military’s Eastern Theater Command published comments by its spokesman, Maj. Shi Yi, saying the unit was organizing joint war patrols and combat drills in the sea and airspace around the island of Taiwan in response to the visit.
- “This is a stern deterrent to the U.S. and Taiwan against continuing to play political tricks and undermining the peace and stability across the Taiwan Strait,” Maj. Shi said.
- Chinese Foreign Ministry spokesman Wang Wenbin accused the U.S. of “hollowing out and distorting the one-China principle” during a regular news briefing in Beijing on Monday.
- The “one-China principle” is a position advanced by Beijing that the People’s Republic of China is the only sovereign and legitimate China, and that Taiwan is part of it.
- In contrast, the U.S. maintains a “one-China policy” that grants Beijing diplomatic recognition and acknowledges, but doesn’t endorse, China’s claims to Taiwan.
Iran Says Some Issues Still Pending as Deadline for Nuclear Deal Looms – Wall Street Journal, 8/15/2022
- Iran on Monday said there were several issues with the nuclear-deal draft text that the U.S. needs to address before Tehran can agree to it, saying it would detail its views by the end of the day.
- The European Union had set Monday as the deadline for Iran, the U.S. and the other countries in the 2015 deal to say whether they would accept the deal or not, according to diplomats.
- The EU circulated last week what it called a “final text” on reviving the accord and sent the draft following four days of talks in Vienna, saying the 16 months of negotiations were now over.
- If all the parties accept the current text, a meeting of foreign ministers could be called within days to seal the agreement. But even then, it is likely to be several months before the 2015 agreement can be fully re-implemented.
Russia’s Crude Shipments to Asia Tumble to Post-Invasion Low – Bloomberg, 8/15/2022
- Russia’s crude shipments tumbled in the week to Aug. 12, dropping to their lowest since March. The volume sent to key Asian buyers, who have stepped in to take barrels shunned by Europe, fell to its smallest since Russian troops invaded Ukraine in February.
- While a single week’s figures are not enough to signal the start of a trend, lower flows to China and India, Russia’s two largest export markets, will cause concern in the Kremlin. Shipments to Asia have been drifting lower from a plateau of about 2 million barrels a day sustained from mid-April to mid-June.
- There is no suggestion yet that India is turning its back on the Russian barrels that it has been so keen to buy at steep discounts after they were forced out of traditional European markets. India’s oil purchasing decisions will continue to “be guided by our energy security requirements,” Ministry of External Affairs spokesman Arindam Bagchi told reporters on Friday.
- Based on current destinations, the average flow of Russian crude to Asia fell below 1.75 million barrels a day, down from more than 2.1 million barrels a day in April and May.
Hong Kong audit watchdog expands probe into Evergrande’s unit – Reuters, 8/15/2022
- Hong Kong’s audit regulator said on Monday it has initiated an enquiry into the financial statements of China Evergrande Group’s property services unit and its former auditor after questions were raised following the developer’s probe into seized deposits worth $2 billion of the unit.
- The Financial Reporting Council (FRC) said in a statement it was investigating the 2020 and first half of 2021 financial statements of Evergrande Property Services, as well as the audit carried out by PwC on its 2020 annual accounts.
- The audit watchdog first announced in October it was investigating Evergrande’s accounts and their audit by PwC because it had concerns about the adequacy of reporting on whether it could continue operating as a going concern.
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