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News & Views: Wednesday, September 24

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What you need to know for today's trading day.

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RBS cuts sale price for U.S. bank Citizens in $3 billion listing (Reuters)

SEC probes Pimco chief Bill Gross's ETF bond fund (Reuters)

German Business Confidence Down to Lowest Level in Over a Year, Ifo Survey Shows (WSJ)

A Month of Bombs Dropped in One Night of Strikes on Syria (Bloomberg)

South Korea to Double Share-Trading Limits in Boost for Brokers (Bloomberg)

Views
Chinese stocks performed strongly last night. The Shanghai Composite (SHCOMP) had the largest risk-adjusted return in the overnight session, rising 1.47%. The Shanghai Property Index (SHPROP) was up 1.65% and extending its gains to 2.34% for the past two days. Yesterday morning, a number of Chinese regional governments announced that they were easing mortgage policies by changing the "one home" restriction. Now, if a homebuyer had paid off their mortgage and sold their prior home, they will be eligible for first-time home buyer status in their next purchase, which allows them to receive better interest rates and a lower down payment. This is a back door approach to circumventing the tight financing in China at the moment. It's also important to note the outperformance of the SHCOMP versus the Hang Seng Index (HSI). The former is not available to trade by foreigners, where the latter is more dominated by outside money. Risk sentiment remains very positive for Chinese buyers and the HSI likely has some catching up to do.

Russian stocks are strong this morning with sharp weakness seen in the Ruble. The USDRUB FX cross is the weakest currency pair this morning, almost two standard deviations - it's largest rise in three months - and the MICEX is the second best performing equity index overnight. This morning, the Russian government was able to sell 10b rubles worth of domestic bonds, which were placed with a single bidder, with demand 4.75x the total allotted. The final high yield was 7bps below the secondary market pricing with most expecting a tail. This should result in two things. International Russian companies will regain access to foreign capital markets again and provide a downward pressure on the USDRUB, also a tailwind for Russian equities. There were also reports of one exporter cutting a very long FX position in the pair in front of the mineral-extraction tax payments, which, may cause the USDRUB to reach 38 as early as today.

German IFO sentiment (a survey of business executives) on the current business climate fell to 104.7 in September from 106.3 last month, a persistent theme this month due to the continued fighting in Ukraine. A new reason cited in today's survey was weakness in emerging market economies, particularly China.

There are three articles on the Bloomberg terminal this morning discussing Dudley's speech on Monday. In his speech, he had downplayed the interest rate forecasts the Fed makes (dot plot), said that inflation will probably need to run "hot" or above target for some time to make up for the years of disinflation, and that patience is needed for rate hikes. I think this is the main line of central Fed thinking - they are waiting to see if the economy is really on a firm footing before starting to normalize. The hawks argue they should get started now that way the process is more gradual, and keeps aggregate interest rates low. It's worth putting your money on Dudley in my frank opinion - the hawks (Dudley, Plosser, Bullard) will not even be in the Federal Reserve system for the first rate hike, and the market is saying loud and clear that the Fed is tightening too quickly.

Newly appointed Fed President Loretta Mester is speaking today on monetary policy in Cleveland at 12:05pm ET. There will be a Q&A section afterwards. Mester is a student of Plosser at the Philadelphia Fed and is expected to be a hawk. She also holds a vote this year. Her only prior speech before today echoed the supposed hawkish ideals. Much of her arguments mimicked those of Plosser's.

One somewhat comedic aside to wrap things up - South Korea is doubling its share-trading limits by brokers for it's $1.3trln equity market. Well, Samsung is an eighth of that value. Talk about saturation.

Data:
- German IFO business climate (Sep) down to 104.7 vs 105.8 expected, prior 106.3
- German IFO expectations down to 99.3 vs 101.2 exp, prior 101.7
- Italy consumer confidence index (Sep) up to 102.0 vs 101.0 exp, prior 101.9
- Japan manufacturing PMI (Sep prelim) down to 51.7, prior 52.2
- China westpac-MNI consumer sentiment (Sep) down to 113.2, prior 113.3

US Economics (Time Zone: EST)

10:00 New Home Sales (Aug) - expected 430K, prior 412K
11:00 Fed to purchase $950m-$1.15b bonds in 22-30 year range
11:30 Treasury to sell $13b 2-year FRN
1:00 Treasury to sell $35b 5-year notes

Fedspeak:

12:05pm Mester (hawk, voter) speaks in Cleveland
1:00pm Evans (dove, nonvoter) speaks in Washington

Earnings

Before:
KB Home (KBH)
Vail Resorts (MTN)

Twitter: @MichaelSedacca

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No positions in stocks mentioned.

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