Five Things You Need to Know to Start Your Day
Markets are falling, bond yields are bouncing, and Donald Trump is giving out investment advice. Here are some of the things people in markets are talking about today.
Markets take a tumble
Markets on Tuesday were hit with a familiar cocktail of concerns over lower oil prices, the health of banks, central bank impotence, and a weakening economy following the release of mediocre U.S. auto sales and lukewarm consumer spending data. Tuesday’s fall means the S&P 500 has notched its first back-to-back declines since the aftermath of the U.K.’s decision to quit the European Union and futures are pointing to a 0.23 percent decrease as of 4:55 a.m. ET on Wednesday. Asia stocks are heading for their steepest drop in more than a month with Japan’s Topix index sinking more than 2 percent after the yen jumped 1.5 percent in the last session. The Stoxx Europe 600 Index slipped 0.1 percent. On the plus side, oil seems to have halted its decline below $40 a barrel with futures up 0.2 percent early Wednesday morning.
Bouncing bond yields
Bill Gross, erstwhile bond king, doesn’t much like sovereign debt, reiterating a previous warning that record low yields on government bonds “aren’t worth the risk.” His warning follows a growing chorus of caution on sovereign debt, with the average yield on bonds in Bank of America Corp.’s G-7 Government Index climbed to 0.58 percent, the highest level in five weeks. Japanese government bond prices have taken their steepest tumble in more than three years as investors fret over the Bank of Japan nearing the limits of unconventional monetary policy. Meanwhile, analysts at JPMorgan Chase & Co. note that: “At its core, market sentiment on developed market government bond yields have shifted in recent days, driven by less dovish outcomes at central bank policy meetings, but also by expectations of more fiscal stimulus.”
British services shrink ahead of the BOE
Britain’s services sector – the largest part of its economy – is shrinking at the fastest pace in seven years following the Brexit referendum. Markit’s Purchasing Managers Index plunged to 47.4 in July from 52.3 in June, below the 50 level that signals contraction. The gauge hasn’t been this weak since March 2009 and will likely add weight to arguments for the Bank of England to cut rates this week. The U.K.’s central bank is widely expected to ease monetary policy further when it meets on Thursday. Here’s a look at the menu of stimulus measures that might be on offer.
Trump’s 401(k) advice
Speaking of fiscal stimulus, Republican presidential nominee Donald Trump has proposed a plan to rebuild U.S. infrastructure that costs “at least double” the amount that rival Hillary Clinton has floated, in what would amount to a massive new government program worth more than $500 billion. Trump also warned that artificially low rates set by the Federal Reserve are inflating the stock market and recommended 401(k)-holders get out of equities, just like he did (naturally). His comments come amid growing tension between him and Republicans concerned that his inflammatory rhetoric — most recently about the parents of a slain American soldier — is hurting the party’s chances against Clinton.
Bring in the bank results
HSBC Holdings Plc announced a $2.5 billion share buyback for this year, seeking to soften the blow to investors as global economic uncertainty led it to abandon a 2017 profitability target and step back from its plans to boost dividends. Pretax earnings fell 45 percent to $3.61 billion from a year earlier, the bank said Wednesday, and it removed the target of surpassing a 10 percent return on equity by the end of next year. Elsewhere in banks, Societe Generale SA and Credit Agricole also released second-quarter results. Profits at SocGen rose 8 percent, boosted by lower provisions for bad loans and a gain on the sale of its stake in Visa Europe Ltd. Credit Agricole profits jumped 26 percent, also boosted by its Visa stake sale.