Market Update – September 29 – Asian shares set for their Worst Quarter
- The surge in Treasury rates was a major catalyst behind the steep drop on Wall Street, though the looming debt limit and potential government shutdown on October 1, and more importantly the threat of default, weighed heavily on US assets.
- China’s power crunch worsens.
- Yields stabilised (30-year closed to 2.10% and the 10-year hit 1.565% before dipping late in the session as some dip buyers stepped forward).
- The MSCI’s gauge of Asian stocks saw the biggest drop in almost six weeks and is set for the first quarterly slide in six. – Evergrande concerns resurfaced as China stepped in to buy a stake in a regional bank from the developer. Hong Kong’s central bank has reportedly asked lenders to report their exposure to the Group and Fitch Ratings downgraded the developer’s rating to C from CC.
- Testimony from Fed Chair Powell and Treasury Secretary Yellen did not do the markets any favors either but added to the overall uncertainties emanating from Capitol Hill.
- Equities extended losses in Japan, JPN225 down -2.6%. USA500 was off -2.0% at 4355, USA100 paced the plunge in the indexes, tumbling -2.8%, below 15,000. USA30 was -1.6% lower.
- USOil dropped back below the $74 mark, after reaching a high of 74.87.
- FX markets – GBP selling off sharply yesterday but steadied so far today – USD corrected – USDJPY – 110.33, Cable 1.3527, EURUSD 1.1677.
European Open – Some stabilisation then for the beleaguered bond market and stocks are also showing signs of life, with GER30 and UK100 futures posting gains of 0.4% and 0.2% respectively, while US futures are up around 0.6%.
After the sharp sell off in equity markets in recent days, dip buyers were bound to emerge eventually – Will calm in bond markets last for long? – even if central bank officials will do their best to calm nerves this week.
Unless the China risk escalates and spills ove,r monetary policy support is set to be phased out gradually over the next year and stocks will have to adjust to the changed outlook.
Today – Data releases today include UK lending data and Eurozone ESI economic confidence and there are also a number of speakers at the ECB’s conference on central bankers. Pending Home Sales from the US are also on tap.
Asset of Interest: Cotton (+6.53% in September) Broke 101 barrier, posting a fresh record high, extending its rally for an 8th day in a row and breaking the upper daily BB line. Daily RSI at 73 while MACD line extended above 0 suggesting an increase of positive bias.
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