Five Things You Need to Know to Start Your Day
Investors watching China’s Xi for details on any trade deal, the Fed meets this week, and the world economy in danger of a synchronized slowdown. Here are some of the things people in markets are talking about today.
Xi Faces World
Chinese President Xi Jinping will be in the spotlight when he delivers the key address Monday at the opening of the China International Import Expo in Shanghai after his U.S. counterpart floated the possibility of a trade deal. Investors will be hungry for any sort of details after U.S. President Donald Trump hinted at the possibility of a deal with China at a planned meeting between the two world leaders at the Group of 20 summit in Argentina Nov. 30 to Dec. 1. China is under pressure from Trump and elsewhere to wind back its $423 billion goods trade surplus with the world, and Xi has already pledged that the country will import $24 trillion dollars of goods from abroad over the next decade and a half.
China Property Defaults
Investors are bracing for more debt defaults among China’s cash-squeezed real estate developers as funding costs surge and refinancing pressure intensifies. Borrowing costs in dollars for China’s high-yield issuers, most of whom are property developers, almost doubled this year to 11.2 percent, the highest in about four years, ICE BofAML indexes show. To make things worse, the sector faces a record $18 billion bond maturities in both onshore and offshore markets in the first quarter of 2019. That number is expected to double if investors demand early repayment on some of these notes, according to Bloomberg-compiled data. China’s property developers have been caught in the storm of a funding crunch facing the nation’s private sector due to a two-year long clampdown on shadow financing. Although authorities have rolled out measures to ease funding for non-state firms, the existing property control policies won’t loosen, the official Xinhua New Agency said in a commentary last week. At least four property-related firms defaulted on notes this year.
The Federal Reserve meeting is the main event on the economic calendar this week, but economists don't expect any surprises. They'll be watching on Thursday — pushed back a day because of the midterm elections — for any signs market volatility is giving officials pause as they approach a probable hike next month. Expect no change in rates in Australia, New Zealand, Malaysia, Poland or Peru. Haruhiko Kuroda speaks Monday just after the Bank of Japan releases minutes from October. Chinese trade numbers will provide a field test on the effects of U.S. tariffs. The Caixin services PMI may show slowing growth. CPI and PPI arrive on Friday. Japan's key data release is machine orders, with Bloomberg Economics expecting a pullback after a jump in August. Elsewhere in Asia, the Philippines may say growth picked up in the third quarter and that inflation slowed last month. Indonesia will probably report a smaller GDP increase.
Asian equities look like kicking off the week on a weaker note. Futures were lower after U.S. stocks wavered Friday amid concern over whether the U.S. and China can mend their trade tensions. A strong U.S. jobs report helped push Treasuries down, with the 10-year yield rising the most in a month to 3.21 percent. The dollar gained, particularly against the yen, oil dropped and gold was flat. Tuesday's U.S. midterm elections are likely to dominate attention, with some warning that the widely expected outcome of a divided Congress may not be fully priced in.
All Together Now
The world’s major economies that entered 2018 accelerating in sync risk entering 2019 decelerating in sync. The shift is being led by China, where the economy’s weakest performance since 2009 is set to worsen unless a peace can be struck in the trade war with the U.S. Factory readings from Asia already show a fallout, with Taiwan, Thailand and Malaysia slipping into contraction territory. The euro-area too is losing momentum, expanding in the third quarter at half the pace of the prior three months as Italy and Germany stagnated. That comes just as inflation is picking up, setting up a complex 2019 for European Central Bank policy makers who have pledged to dial down monetary support. The question is whether the U.S. can resist the downdraft, providing ballast for the rest of the world. It’s a marked turnaround from April, when the International Monetary Fund declared the world was enjoying the most united upswing since 2010.
What we've been reading
This is what's caught our eye over the last 24 hours.
- Midterm elections countdown guide.
- Singapore is assessing its 2019 forecasts as trade tensions loom.
- A week of risks for bond traders.
- Hong Kong’s property market may be heading for a correction.
- Temporary waivers for Iran oil buying.
- Australia’s property slump and household spending.
- Will future megacities be a marvel or a mess?
- How Asian firms keep top women.
©2018 Bloomberg L.P.