PETER’S BUSINESS & FINANCE BRIEFING – Wednesday 16 October 2024, 06:00 Hong Kong
● US weighs capping exports of AI chips to some countries ● HK CE John Lee to deliver third policy address focusing on reforms ● Hong Kong’s Hang Seng index tumbles 3.7% as trade data disappoints
Wednesday’s Opening Call
Hang Seng (Hong Kong) Projected Open: 20,090 -229 points -1.1%
Nikkei 225 (Japan) Projected Open: 38,975 -936 points -2.3%
Quick Summary - 4 Things To Know Before Asian Markets Open
Hong Kong Chief Executive John Lee said on Tuesday that carrying out reforms to enhance economic development is among the themes of this year's Policy Address, which he will deliver this morning. He said the cover of the blueprint's hard copy will be in green again, because this reflects the sustainability of government policies. Mr. Lee is expected to announce measures to bolster the city’s standing as a global financial hub in his policy address today. He will also announce plans to diversify the economy through innovation and new industries such as life sciences while rejuvenating local sectors including the fashion trade. In July, the nation’s leadership specified at the Communist Party’s third plenum in Beijing that the city should consolidate and enhance its status as an international financial, shipping and trade centre.
Mainland Chinese and Hong Kong equities tumbled on Tuesday, despite a rally on Wall Street, as investors await more details of a stimulus package first announced by Beijing in late September. The finance ministry on Saturday said it would issue more debt to boost the property market, recapitalise banks and help cash-strapped local governments. However, no figure was provided on the amount of spending. China had posted disappointing September trade data after markets closed Monday, with exports rising 2.4% from a year ago and imports adding 0.3%, both sharply missing expectations.
China has begun enforcing a long-overlooked tax on overseas investment gains by the country’s ultra-rich, according to a report by Bloomberg News on Tuesday. Some wealthy individuals in major Chinese cities were told in recent months to conduct self-assessments or summoned by tax authorities for meetings to evaluate potential payments, including those in arrears from past years. The move underscores growing urgency within the government to expand its sources of revenue as land sales tumble and growth slows.
Biden administration officials have discussed capping sales of advanced AI chips from Nvidia and other American companies on a country-specific basis, a move that would limit some nations’ artificial intelligence capabilities, according to sources who spoke to Bloomberg News. The new approach would set a ceiling on export licences for certain countries in the interest of national security. Officials are focused on Persian Gulf countries that have a growing appetite for AI data centres and the deep pockets to fund them. Deliberations are in early stages and remain fluid, the report said, noting that the idea has gained traction in recent weeks.
Chinese Banks Set To Cut Deposit Rates As Soon As This Week
Chinese banks are set to trim rates on 300 trillion yuan (US$42.3tn) of deposits as soon as this week after the latest barrage of stimulus policies further squeeze their profitability, according to Bloomberg News Tuesday. Major banks including Industrial & Commercial Bank of China and China Construction Bank will be guided by the central bank’s interest rate self-disciplinary mechanism to lower the rates on a number of deposit products, the report said, citing unnamed sources. Rates on one-year time deposits may drop by at least 20 bps, while those on longer tenors may come down at least 25 bps. The plans have yet to be finalised.
The cuts would mark the second such reduction this year, following the previous round in late July. The moves come after China unveiled its biggest package yet to shore up its sputtering economy, slashing policy rates as well as the borrowing costs on US$5.3 trillion in outstanding mortgages. The PBOC last month delivered the biggest-ever decrease to the interest rate charged on its one-year policy loans. Governor Pan Gongsheng also said reduction in deposit rates would follow suit.
China’s commercial banks have had some leeway in setting their own rates since the central bank scrapped direct control in 2005. The People’s Bank of China, however, maintains substantial sway by setting a ceiling and floor for rates through the interest rate self-disciplinary body. Chinese banks implemented a broad cut in deposit rates in late 2022, the first such move since 2015, after authorities urged them to boost lending. They lowered deposit interest three more times last year. Despite the reductions, the industry’s net interest margins have been falling and hit a record low of 1.54% at the end of June, well below the 1.8% threshold regarded as necessary to maintain reasonable profitability.
China Moves To Tax the Ultra-Rich For Overseas Investment Gains
China has begun enforcing a long-overlooked tax on overseas investment gains by the country’s ultra-rich, according to a report by Bloomberg News on Tuesday. Some wealthy individuals in major Chinese cities were told in recent months to conduct self-assessments or summoned by tax authorities for meetings to evaluate potential payments, including those in arrears from past years, Bloomberg said. The move underscores growing urgency within the government to expand its sources of revenue as land sales tumble and growth slows. It also aligns with President Xi Jinping’s “common prosperity” campaign to create a more equal distribution of wealth in the world’s second-largest economy. The individuals contacted are facing up to 20% levies on investment gains, and some are also subject to penalties on overdue payments, the report said.
US Weighs Capping Exports Of AI Chips To Some Countries
Biden administration officials have discussed capping sales of advanced AI chips from Nvidia and other American companies on a country-specific basis, a move that would limit some nations’ artificial intelligence capabilities, according to sources who spoke to Bloomberg News. The new approach would set a ceiling on export licences for certain countries in the interest of national security. Officials are focused on Persian Gulf countries that have a growing appetite for AI data centres and the deep pockets to fund them. Deliberations are in early stages and remain fluid, the report said, noting that the idea has gained traction in recent weeks.
The policy would build on a new framework to ease the licensing process for AI chip shipments to data centres in places like the United Arab Emirates and Saudi Arabia. Commerce Department officials unveiled those regulations last month and said there are more rules coming. Setting country-based caps would tighten restrictions that originally targeted China’s ambitions in artificial intelligence, as Washington considers the security risks of AI development around the world. Already, the Biden administration has restricted AI chip shipments by companies like Nvidia and AMD to more than 40 countries across the Middle East, Africa and Asia over fears their products could be diverted to China. At the same time, some US officials have come to view semiconductor export licences, particularly for Nvidia chips, as a point of leverage to achieve broader diplomatic goals. That could include asking key companies to reduce ties with China to gain access to US technology.
Japan Industrial Output Shrinks As Expected
Industrial production in Japan declined by 3.3% month-over-month in August, in line with preliminary data. This marked the fifth month of decreases so far this year, following 3.1% growth in the previous month. Yearly, industrial production contracted 4.9%, reversing a 2.9% increase in July.
South Korea Export Prices Rise For 9th Month
South Korea's export prices rose by 1.2% from a year earlier in September, following a downwardly revised 5.5% jump in the preceding month. This marked the ninth consecutive month of rising export prices. On a monthly basis, export prices fell by 2.3% in September, easing from the 2.8% drop recorded in the prior month.
South Korea's import prices fell by 3.3% year-on-year in September, marking the first decline after five consecutive months of increases, following a 1.8% rise in August. On a monthly basis, import prices decreased by 2.2%, following a decline of 3.5% in the previous month.
Indonesia Trade Surplus Narrows In September
Indonesia's trade surplus narrowed to US$3.26 billion in September, down from US$3.40 billion in the same month a year earlier, but above economists’ estimates of US$2.83 billion. Shipments increased by 6.4% from a year earlier, marking the sixth consecutive month of growth, though at the slowest pace in three months and below analysts’ expectations of an 8% gain. Export growth was mainly driven by higher shipments to the US (20.5%), Japan (14.8%), China (3.5%), ASEAN countries (12.2%), and the EU (17.0%). Meanwhile, imports rose by 8.6%, below market forecasts of an 11.8% increase and softer than August's 9.5%, amid the government's plans to impose import duties on several commodities. In the first nine months of 2024, the trade balance recorded a surplus of US$27.72 billion, with exports and imports rising by 0.3% and 3.9%, respectively.
Indonesia Q3 FDI Hits Record
Foreign direct investment (FDI) into Indonesia, excluding investment in the financial and oil & gas sectors, surged by 18.6% from a year earlier to a record peak of IDR 232.65 trillion (US$14.94bn) in Q3 of 2024, after a 16.6% gain in Q2. It marked the fastest growth in foreign direct investment since Q1 of 2023, buoyed by a clearer direction of the economy following February's election. The largest beneficiaries of the FDI were the base metal industry (US$3.03bn), transportation, warehousing and telecommunication (US$2.02bn), and mining (US$1.56bn). Singapore, Hong Kong, and China were the biggest sources of FDI. Indonesia registered a total of IDR 431.48 trillion of foreign and domestic investment during Q3, rising 15.3% y/y.
Eurozone Industrial Output Rebounds Most Since February 2023
Industrial production in the Eurozone rose by 1.8% month-over-month in August, the most since February 2023 and recovering from an upwardly revised 0.5% decrease in July. It beat economists’ expectations of 1.7%. Among the major economies in the Euro Area, Germany saw a significant surge of 3.3% in production, while France (1.4%) and Italy (0.1%) also experienced growth. However, Spain saw a slight decline of 0.4%. On an annual basis, industrial output edged up 0.1%, after a 2.1% drop in July.
German Investor Morale Improves
The ZEW Indicator of Economic Sentiment for Germany jumped to 13.1 in October from 3.6 in September and beat forecasts of 10. The rise is mostly due to "expectation of stable inflation rates and the associated prospect of further interest rate cuts by the ECB,” according to the ZEW President Professor Achim Wambach. On the other hand, the assessment of the economic situation in Germany continued to worsen, dropping to -86.9, the lowest since May 2020, compared with -84.5 in September.
UK Wage Growth Continues To Slow As Pay Pressures Ease
UK wage growth continued to slow in the three months to August, while growth in payroll employment flattened, official data showed on Tuesday. Annual earnings growth, excluding bonuses, declined to 4.9%, in line with expectations, cooling from 5.1% in the three months to July, the Office for National Statistics (ONS) said. Earnings including bonuses hit a more than two-year low of 3.8%. The number of employees on the payroll was “largely unchanged” in September from the previous month, the ONS said. The findings add to evidence that pay pressures in the economy are easing and corroborate recent business surveys suggesting many employers have put hiring on hold ahead of this month’s Budget while waiting for more certainty over government policy on tax and spending.
The data was the last snapshot of wage pressures before the Bank of England next meets to decide monetary policy and appeared supportive of a potential rate cut. Swaps markets are currently pricing around an 83% probability of another 25 bps rate reduction in November.
Canada Inflation Falls More Than Expected
The annual inflation rate in Canada fell to 1.6% in September from 2% in the previous month, the lowest since February of 2021, and well below the market consensus of 1.9%. It was the second consecutive period that consumer inflation was under the Bank of Canada’s target of 2%, raising expectations that the Bank of Canada will continue its cutting cycle. The sharp decline was attributed to lower prices for gasoline (-10.7% vs -5.1% in August) due to lower crude oil prices, which extended the deflationary momentum for transportation (-1.5% vs -0.1%). The trimmed-mean core rate held at 2.4%. From the prior month, Canadian consumer prices fell by 0.4%.
New York Manufacturing Index Posts Surprise Contraction
Manufacturing activity in New York unexpectedly declined in October, according to a Federal Reserve report Tuesday. The New York Fed’s Empire State Manufacturing Index posted a reading of -11.9 on the month for general business conditions, a decline of 23.4 points from September and well below the 3.0 Dow Jones consensus estimate. This marks the worst reading since May, pointing to a renewed contraction in New York State. The index measures the percentage difference between companies reporting expansion against contraction. Elsewhere in the survey, new orders plunged to -10.2 while shipments tumbled to -2.7 as both indexes showed declines of around 20 points. Also, the prices paid and received indexes both showed upticks, though employment rose 9.8 points to 4.1. While the headline index slumped, the expectations index for activity six months ahead rose to 38.7, an increase of 8.1 points.
US 1-Year Inflation Expectations Steady At 3%
The New York Fed Survey of Consumer Expectations saw inflation expectations for the year ahead unchanged at 3.0%. However, median inflation expectations increased to 2.7% from 2.5% at the three-year horizon and increased to 2.9% from 2.8% at the five-year horizon. The average perceived likelihood of a voluntary job separation and the perceived likelihood of finding a job in the event of a job loss increased. While year-ahead household income and spending growth expectations both slightly declined, perceptions and expectations about credit access improved. Delinquency expectations continued its upward trend and increased to the measure’s highest level since April 2020.
Fed’s Daly Says There’s ‘A Long Way’ To Go Before Rate Cuts Stop
San Francisco Federal Reserve President Mary Daly said Tuesday there’s plenty of room to lower the central bank’s key interest rate from here, though she noted the long-run baseline is probably higher than it’s been in the recent past. “We’re a long way from where it’s likely to settle,” she said during a talk at New York University’s Stern School of Business. “So the decisions that are really in front of us are ones about how quickly to adjust towards that level. But it’s quite possible that we will have a neutral rate of interest that’s a little higher than the interest rate that we came in with.” Daly, who is a voting member on the rate-setting Federal Open Market Committee this year, said a 3% neutral rate, neither boosting nor restricting growth, would be a “completely reasonable” level. That’s 1.75 percentage points below the current target rate.
HK Chief Executive To Unveil Steps To Boost Financial Hub Role
Hong Kong Chief Executive John Lee said on Tuesday that carrying out reforms to enhance economic development is among the themes of this year's Policy Address, which he will deliver this morning. He said the cover of the blueprint's hard copy will be in green again, because this reflects the sustainability of government policies.
Hong Kong’s leader is set to announce measures to bolster the city’s standing as a global financial hub in his policy address today, the South China Morning Post reported Saturday, citing unidentified sources. Lee’s third policy blueprint, expanding from national security and post-pandemic measures covered in the previous two addresses, would focus on macroeconomic developments, one source said. He would also announce plans to diversify the economy through innovation and new industries such as life sciences while rejuvenating local sectors including the fashion trade, the SCMP reported. In July, the nation’s leadership specified at the Communist Party’s third plenum in Beijing that the city should consolidate and enhance its status as an international financial, shipping and trade centre. Hong Kong and Macau should also transform themselves into international hubs for high-calibre talent.
Hong Kong’s economic prospects have been hampered by slowing economic growth in China, higher US interest rates and a fall in tourist numbers. Mounting bad debts from distressed properties and businesses are weighing on the territory’s banks, and could inflict further pain on the broader economy, analysts warn. “It is a question of whether the traditional business models”, including financial services, tourism and real estate, “can still fit the new economic reality”, said Gary Ng, a senior economist at Natixis, citing the challenge of decelerating economic growth in China. The total number of inbound tourists in Hong Kong, most of whom come from mainland China, is still at about 30% of 2018 levels, almost two years after the territory lifted Covid restrictions. They are also spending less. Per capita tourist retail spending fell 30% in the first six months of this year compared with 2018, according to JLL. Retailers in Hong Kong said consumers were still cautious.
Premier Li Qiang Visits Pakistan
Chinese Premier Li Qiang visited Pakistan Monday to attend the 23rd Meeting of the Council of Heads of Government of Member States of the Shanghai Cooperation Organization (SCO) and to strengthen bilateral ties. He is the first Chinese premier to visit Pakistan in more than a decade. Premier Li reiterated China’s pledge to upgrade a multibillion-dollar economic corridor with Pakistan and deepen joint counterterrorism efforts with its military as he arrived in Islamabad on Monday. The China-Pakistan Economic Corridor (CPEC) is a flagship project under Beijing’s Belt and Road Initiative, with more than US$65 billion pledged for projects in Pakistan as of 2022. Formally announced in 2013, the 3,000km (1,864-mile) route of infrastructure projects aims to connect landlocked western China to the Arabian Sea via Pakistan’s deep sea Gwadar Port. Earlier, Premier Li and Pakistani Prime Minister Shehbaz inaugurated the Beijing-funded New Gwadar International Airport in a televised virtual ceremony.
Speaking during a regular media briefing in Beijing, Chinese Foreign Ministry Spokesperson Mao Ning said China and Pakistan are ironclad friends and all-weather strategic cooperative partners. She said China looks forward to working with Pakistan to expand cooperation across the board and accelerate building of a closer bilateral community with a shared future in a new era and jointly work for regional peace, development and prosperity.
North Korea Blows Up Roads Connecting With South As Tensions Rise
North Korea blew up parts of roads connecting it to South Korea, Seoul’s Joint Chiefs of Staff said on Tuesday afternoon. It comes after Pyongyang vowed last week to cut off the roads and railways once seen as symbols of inter-Korean cooperation, in a bid to “completely separate” the two countries. The Korean People’s Army (KPA) described the move as “a self-defensive measure for inhibiting war”, claiming it was in response to war exercises in South Korea and the frequent presence of American nuclear assets in the region. Destroying the roads underlines North Korean leader Kim Jong Un’s drive to cut ties with South Korea after giving up the long-standing goal of peaceful unification with the South at the beginning of the year. The move came a day after Kim held a rare meeting with top security officials, accusing South Korea of sending drones over its capital Pyongyang, which he called a “serious provocation”. South Korea’s military later fired off warning shots within its border, according to the country’s Joint Chiefs of Staff, which also confirmed there were no reports of damage in South Korea from the detonations.
Investor Optimism Surges To Post Pandemic High
According to Bank of America’s latest fund manager survey, investor optimism has registered the biggest jump since the depths of the pandemic in June 2020, the October responses showed. Allocations to stocks surged, bond exposure sank and cash levels fell to 3.9% from 4.2% in September. Meanwhile, global growth expectations recorded the fifth largest jump since 1994. 74% of investors believe the US will avoid a recession, and only 10% of investors expect a weaker economy in the next 12 months, the survey showed. The bullish fever is being fanned by signs that the US economy is powering ahead as the Federal Reserve cuts rates and China takes major steps to stimulate growth. Despite the optimism, the VIX volatility index, also known as Wall Street’s fear gauge, has been holding near 20. It’s unusual for the index to be that high at a time when stocks are notching fresh highs and suggests investors haven’t completely thrown caution to the wind.
Hong Kong Equities Plunge
Mainland Chinese and Hong Kong equities tumbled on Tuesday, despite a rally on Wall Street, as investors await more details of a stimulus package first announced by Beijing in late September. The finance ministry on Saturday said it would issue more debt to boost the property market, recapitalise banks and help cash-strapped local governments. However, no figure was provided on the amount of spending. However, Caixin later reported China could issue 6 trillion yuan of Treasury Bonds over three years, noting funds will be partially used to help local governments resolve their off-the-books debts. China had posted disappointing September trade data after markets closed Monday, with exports rising 2.4% from a year ago and imports adding 0.3%, both sharply missing expectations.
China’s benchmark CSI 300 index tumbled 2.7% to 3,856, the lowest level since September 27. The index was up more than 33% at one stage since the announcement of stimulus at the end of September. But it cooled off last week, losing 8.7%. Year-to-date, the CSI 300 has gained 12.4% after returning as much as 24% for the year-to-date just seven days ago.
Hong Kong’s Hang Seng index plunged 774 points, or 3.7%, to 20,319. The city’s benchmark index is down 12.0% since October 7, having gained as much as 32.6% in the preceding three weeks. The Hang Seng is still up 19.2% for the year, making it among the top performing major indices in 2024. The Tech Index declined 4.7% Monday. The Hang Seng China Enterprises Index of Chinese shares listed in Hong Kong closed 4.0% lower, taking its decline since October 7 to 12.6%. It surged more than 30% in the previous three weeks.
Shares of Chinese electric-vehicle makers listed in Hong Kong plunged. Geely Automobile and Li Auto were among the top losers in the Hang Seng Index, falling as much as 6.0% and 6.9%, respectively. Nio saw its shares drop 8.3%. Chinese EV makers Xpeng and BYD fell 6.8% and 4.3%, respectively.
Chinese technology stocks listed in the city also suffered sharp declines. Meituan tumbled 7%, while Baidu fell 5.9%. Gold producer Zijin Mining Group fell 4.5% after bullion prices retreated on expectations that the Federal Reserve will be less aggressive with future interest rate cuts.
Asian Markets Firmer
Other markets in Asia Pacific were firmer Tuesday after the S&P 500 and Dow closed at record highs in the previous session. Equities in Australia, Japan, South Korea and Taiwan registered gains. Australia’s S&P/ASX 200 rose 0.8%. Taiwan’s semiconductor-heavy Taiex rose 1.4% after Nvidia reached a new all-time high on Wall Street. Taiwan Semiconductor Manufacturing Company shares jumped 2.4% and Hon Hai Precision Industry (Foxconn) shares rose 4.0%.
Japan’s Nikkei 225 gained 0.8% to close at a three-month high of 39,911. Tokyo Metro raised 348.6 billion yen (US$2.3bn) in Japan’s largest initial public offering in six years after pricing its IPO at the top of its range at 1,200 yen apiece. The IPO was more than 15 times oversubscribed. The stock is expected to start trading on the Tokyo Stock Exchange on October 23.
South Korea’s Kospi was up 0.4%. Revised trade data out of South Korea showed the trade surplus at US$6.7 billion in September, same as preliminary estimates, up from US$3.7 billion in August.
In India, the BSE Sensex closed 0.2% lower at 81,820 on Tuesday, after reaching its highest level in two weeks in the previous session. Concerns over inflation and disappointing Q2 earnings weighed on market sentiment. Data released Monday showed that India's inflation accelerated more than expected to a nine-month high of 5.49% in September, due to a surge in food prices, well above the RBI’s target of 4%, and dampening hopes of rate cuts.
European Markets Lower
European markets fell on Tuesday as earnings season kicked in. The region-wide Stoxx Europe 600 fell 0.8% in a broad-based retreat. The European oil and gas sector index was down 3.2% on falling oil prices. Tech stocks shed 6.4%, led by losses of 15.6% for Dutch chip giant ASML. In its earnings report, published a day earlier than expected, ASML said it expects net sales for 2025 to come in between €30 billion (US$32.72bn) and €35 billion, at the lower half of the range it had previously provided. Telecoms stocks posted a 2.0% rise, driven by Sweden’s Ericsson, which jumped 10.9%, leading gains in the Stoxx 600. The equipment manufacturer beat consensus earnings forecasts for the third quarter, despite a 4% fall in year-on-year sales. Germany’s DAX touched a record high during morning trade before closing 0.1% lower. London’s FTSE 100 fell 0.4%.
Shares in the UK housebuilder Bellway advanced 8.3% after it predicted a jump in home sales next year, despite a slump in profits in its financial year to July 2024. Shares in the French oil group TotalEnergies fell 4.8% after it reported lower than expected refining margins.
After the Paris stock market closed, LVMH reported sales fell in the third quarter as the world’s largest luxury group warned of an “uncertain economic and geopolitical environment”. Group revenues at the conglomerate dropped 3% to €19.1bn, below consensus estimates of a 1% increase. Sales in the core fashion and leather goods division, which is seen as a bellwether for the industry, fell 5% year-on-year compared with the same period a year ago, also missing analysts’ consensus of 1% growth. “There were misses across the board,” said Luca Solca, analyst at Bernstein.
The UK labour market snapshot released by the Office of National Statistics on Tuesday was broadly supportive of a Bank of England rate cut in November, according to analysts. Wage growth met forecasts and slowed to the lowest level in more than two years, while the jobs market was relatively stable, with unemployment dipping to 4% from 4.1%. The BOE cut rates by 25 bps in August and held them steady in September.
US Stocks Retreat From Record Highs As Oil & Tech Decline
US stocks tumbled Tuesday as weakness in the energy sector and tech stocks dragged the Dow and S&P 500 back from record highs. The Dow touched a fresh intraday record before reversing. It closed 325 points lower, or 0.8%, at 42,740. The S&P 500 slipped 0.8% to end at 5,815. The Nasdaq Composite fell 1.0% to 18,316. The small-cap Russell 2000 had a positive session, adding 0.1%.
The energy sector was the worst performer in the S&P 500, down 3.0% as oil prices fell. Shares of U.S. and European energy companies including Occidental Petroleum (-4.4%) and Devon Energy (-3.9%) sold off.
Shares in ASML led the tech sector lower Tuesday after the chip equipment maker warned of a slower recovery in the semiconductor market, in results accidentally published a day early. The Dutch chipmaker cut its outlook for next year after reporting orders that were only half as much as investors had expected for the third quarter. Shares of ASML fell 16.3% in New York. Semiconductors were already under pressure on Bloomberg reports that the US is looking to curb chip exports to the Middle East from Nvidia and AMD in the interest of national security. The Philadelphia Semiconductor index fell 5.3%, its worst one-day drop since September 3. Nvidia slid 4.7% after closing at a record high on Monday. UK chip designer Arm dropped 6.9% and Broadcom was 3.5% lower following the news from ASML.
Investors stateside were also monitoring big bank earnings, with Bank of America, Goldman Sachs and Citigroup all topping analyst estimates. Those came after Wells Fargo and JPMorgan Chase reported strong earnings last week. The better than anticipated results from the big US banks have raised hopes among investors that the US economy is heading for a “soft landing” where it avoids a recession as the Federal Reserve starts to reverse its earlier interest rate rises.
UnitedHealth shares closed 8.1% lower, the biggest daily fall since March 2020. The US’s biggest health insurer reported higher medical costs and issued a soft earnings outlook. UnitedHealth cut its 2024 earnings guidance to $15.50 to $15.75 a share. It also forecast earnings of as much as $30 a share, lower than the highest Wall Street estimate of $31.55 and compared to the mean among analysts of $29.66. The insurer’s decline weighed on the 30-stock Dow.
Boeing plans to raise up to US$25bn in new capital, according to a regulatory filing, as the beleaguered US plane maker seeks to shore up its balance sheet in the face of a crippling strike by its largest labour union. Boeing said that the filing “provides flexibility for the company to seek a variety of capital options as needed to support the company’s balance sheet over a three-year period”. Separately, the company said it had entered into a US$10bn “supplemental credit agreement” with a consortium of lenders. Shares of Boeing rose 2.3%.
Treasury Yields Mixed
Treasury yields were mixed, with the 2-year yield unchanged at 3.96% and the 10-year yield moving 6 bps lower, settling at 4.03%.
US Dollar Close To 2-Month High
The US Dollar Index held above 103 on Tuesday, near its highest levels in over two months amid bets that the Federal Reserve will take a more moderate approach to cutting interest rates in the coming months. Asian currencies were weaker for a second day. China’s renminbi weakened against the dollar, declining 0.4% to Rmb 7.12, the lowest level in over a month. The South Korean won depreciated toward 1,360 per dollar, hovering near two-month lows. The Japanese yen traded around ¥149.23 per dollar on Tuesday, sliding toward the psychologically important ¥150 level as the dollar rallied further. The Japanese yen has fallen two weeks in row against the dollar, approaching levels that some strategists say raises the risk of a move by the central bank to prop up the currency.
In Europe, the British pound remained below $1.31, the lowest level in about a month, after fresh labour data for the UK reinforced bets that the Bank of England will continue to cut borrowing costs, with another reduction expected next month. The euro weakened 0.2% to $1.0887, a two-month low, as traders bet the European Central Bank (ECB) will cut rates faster than the US Federal Reserve. The ECB is expected to cut its deposit rate by 25 bps on Thursday, following reductions in September and June.
Gold Steady On Rising Geopolitical Risks
Gold rose 0.3% to $2,661 per ounce on Tuesday after edging lower in the previous session, supported by rising geopolitical risks. China conducted extensive drills around Taiwan, deploying a record number of military aircraft and, for the first time, announcing the deployment of its coast guard to encircle the island
Oil Extends Decline As Fears Of Middle East Escalation Recede
Oil prices fell further on Tuesday as fears of escalation in the Middle East receded. Brent crude fell as much as 5.3% in early trading before recovering slightly to settle 4.1% lower at $74.25 a barrel, down a fifth from a peak above $90 a barrel in April. The decline comes following reports that Israel had told the US it would hit only military targets in any attack on Iran, not oil or nuclear facilities.
Traders were also concerned about the demand side for oil. Global demand for oil will grow less than expected this year and next, according to the latest estimates from Opec, which cut its 2024 demand forecast for the third time in a row. Analysts also worried about the health of China’s economy after the country’s highly anticipated Finance Ministry briefing on Saturday lacked new incentives to boost consumption in the world’ biggest oil importer. China reported weaker than forecast inflation data for September over the weekend, underscoring persistent deflationary pressures and weak domestic demand in Asia’s largest economy. The International Energy Agency said on Tuesday that oil demand in China would grow by just 150,000 barrels a day in 2024, after consumption dropped for the fourth consecutive month in August, by 500,000 b/d. “Chinese oil demand continues to undershoot expectations and is the principal drag on overall growth,” the IEA said. The IEA, which manages oil reserves for OECD countries, also said there were now more than 1.2bn barrels of stocks, and plenty of spare capacity among Opec members, to cushion any supply disruption.
Bitcoin Breaks Above 200 DMA
Bitcoin broke out of its down-channel, rising through the 200 DMA. Bitcoin ended the day 1.1% higher around $66,700.
Peter Lewis’ Money Talk Podcast
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