News & Views: Friday, October 3
What you need to know for today's trading day.
China Won't Bail Out Local Governments (WSJ)
Traders Wipe $1 Trillion From Default Swaps Before Overhaul (Bloomberg)
JPMorgan hack exposed data of 83 million, among biggest breaches in history (Reuters)
Exclusive: Facebook plots first steps into healthcare (Reuters)
Hong Kong Protesters Attacked at Pro-Democracy Protests (Bloomberg)
German markets are closed today for "National Day." Hong Kong reopened and moderate gains were seen in the Hang Seng (HSI) overnight, which is more than was priced in by the US-denominated ETF FXI. Mainland Chinese markets remain closed for a third day.
Protests in Hong Kong seem to be dieing down, or as was feared, local citizens (probably with help from the Chinese irregular army) are attemping to force the protestors out of their encampments in different parts of the city and Kowloon. Many were afraid that when the country's holidays were over that the disruption to daily life and economic activity would become a greater problem than the elections that are three years away. That diminishes, at least for now, one of the main geopolitical risks.
European credit indices - SNRFIN, SUBFIN, MAIN, XOVER - are showing the largest positive risk-adjusted return overnight across all assets and are outpacing the gains seen in their local equities. Keep in mind that European credit has performed far worse than equities lately, so there is more ground to be made up there if the pain in stocks does not continue. However, peripheral European bonds are worse in outright yield terms, and slightly tighter against Germany. German Bunds and UK Gilts are catching up to post-European close weakness in US Treasuries yesterday.
Also note that the US dollar is showing the largest positive risk-adjusted return in currencies overnight. That is due to three reasons. The Japanese MOTHERS index - a gauge of local risk sentiment - is the best outright and risk-adjusted performer across equity indices. This is a catalyst for the Yen weakness following almost $2 of strength in a two day period. In Europe, investors are looking past the momentary shortfall in expectations from the ECB to continue selling the EUR. Yesterday did not change the fact that the ECB will remain on hold until 2019. This price action is a very important delineation that investors are more concerned about the long-term trend than any short-term wiggles. Lastly, the GBPUSD is showing the worst performance in currencies overnight. The latest UK services PMI showed a significant deterioration from the prior month
Heading into today's government payrolls number, I think sentiment is very high that we will receive a less-than-expected print, which is why we have seen a continued pressure on equities and strength in Treasuries. Thus, if we see a poor print, they'll most likely rally 'em hard today into resistance.
- Eurozone services PMI (Sep final) up to 54.1 vs 54.0 expected, initial 54.0
- Eurozone retail salse MoM (Aug) up 1.2% vs 0.1% exp, prior -0.4%
- UK services PMI (Sep) down to 58.7 vs 59.0 exp, prior 60.5
- China non-manufacturing PMI (Sep) down to 54.0, prior 54.4
- Japan services PMI (Sep) up to 52.5, prior 49.9
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