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Five Things You Need to Know to Start Your Day

Get up to date on what’s moving global markets this morning.

Five Things You Need to Know to Start Your Day
Xi Jinping, China’s president, speaks during a news conference with U.S. President Donald Trump, not pictured, at the Great Hall of the People in Beijing, China (Photographer: Qilai Shen/Bloomberg)

(Bloomberg) --

The U.S. and China close in on a trade deal, despite appearances; Hong Kong is hotter than ever on the IPO scene and private equity firms are bracing for recession. Here are some of the things people in markets are talking about today.

The U.S. and China are moving closer to agreeing on the amount of tariffs that would be rolled back in a phase-one trade deal, despite the recent tensions over Hong Kong and Xinjiang, people familiar with the talks said. The people, who asked not to be identified, said that U.S. President Donald Trump’s comments Tuesday downplaying the urgency of a deal shouldn’t be understood to mean the talks were stalling, as he was speaking off the cuff. Recent U.S. legislation seeking to sanction Chinese officials over human-rights issues in Hong Kong and Xinjiang are unlikely to impact the talks, one person familiar with Beijing’s thinking said. U.S. negotiators expect a phase-one deal with China to be completed before American tariffs are set to rise on Dec. 15, the people said. Outstanding issues in the talks include how to guarantee China’s purchases of U.S. agricultural goods and exactly which duties to roll back, they added.

Following the more positive view of trade talk progress, Asian stocks were set for gains after U.S. stocks climbed and Treasury yields rose. Futures on equities in Japan, Hong Kong and Australia pointed higher, while the dollar slipped. The pound touched a seven-month high against the greenback as traders stepped up bets for a Conservative victory in next week’s election. Elsewhere, oil rallied as Energy Information Administration data showed U.S. crude inventories fell more than expected, and gold slipped.

Hong Kong initial public offerings are enjoying their hottest quarter among retail investors in four years. The median retail subscription ratio for IPOs since the start of October is 13 times, the highest since the second quarter of 2015, data compiled by Bloomberg show. Back then, retail investors put in orders of 180 times the amount on offer, when the market hit a peak. Now, the Hang Seng Index is almost flat for the year. The popularity of listings comes as Hong Kong enjoys an end-of-year spike in equity issuance despite prolonged anti-government protests and market volatility from the U.S.-China trade war. Hong Kong is on track to surpass 2018 in terms of fundraising for first-time share sales, with companies raising $36.6 billion so far, just $200 million short of last year’s total -- which itself was the highest since 2010. Alibaba Group Holding Ltd.’s mega $12.9 billion share sale in the city last month gave a huge boost to the financial hub. 

Private equity firms are bracing for a downturn and putting in safeguards to limit their downside risk. “Every one of our clients is focused on being prepared for a recession,” Alison Mass, Goldman Sachs Group Inc.’s chairman of investment banking, said Tuesday. For some, that goes beyond making sure capital structures are in order if the economy slows, she said. “I was in Asia earlier this fall and saw the head of a private equity firm that has assets all over the world,” Mass said. “He said he had given a recession checklist to each one of his CEOs with nine things on that checklist that he wanted all of them to work on and come back to him.” The checklist included talking to suppliers and asking them to extend terms, limiting capital expenditures to critical items and hiring only essential employees. That type of due diligence by private equity firms signals concern that a recession could be looming. Currently, the consensus forecast is that there’s a 33% chance of a recession in the U.S. within a year, according to data compiled by Bloomberg.

An unusual sense of tranquility has descended on China’s financial markets. The country’s stocks and government bonds have slowed to a crawl. The Shanghai Composite Index reached lows in volatility unseen in nearly two years, while the benchmark 10-year bond yield is moving in the narrowest range since 2012. And despite some drama for the yuan this week, implied volatility remains near the lowest since August. That everything should go quiet while markets elsewhere in the world swing on each new development in the trade war is especially surprising to China watchers, causing some to question whether Beijing is acting to limit volatility in its markets — something authorities have a history of doing. While there’s no clear evidence of direct intervention in equities or the yuan, state media has recently come out in support of the stock market. 

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