February 02,2018.
United States:
U.S. Stocks Drop as Treasury Selloff Gains Steam: Markets Wrap
U.S. stocks and Treasuries fell in tandem Thursday ahead of a slew of technology earnings, as the threat of higher rates from the Federal Reserve continued to rattle equity markets coming off their best month since March 2016. The Nasdaq 100 Index bore the brunt of the selling as the tech-heavy gauge headed for its worst week since June. Amazon.com Inc. tumbled before its earnings, with Apple Inc. and Alphabet Inc. also fell on results that disappointed. Other major averages notched modest retreats in an up-dandy-down session that actually saw the CBOE Volatility Index decline. The Dow Jones Industrial Average gave up all of a 150-point advance only to eke out a gain in the final minutes of trading. Rate-sensitive real estate and utility shares led the S&P 500 Index to a third drop in four days. While earnings drove individual stock moves, a resumption in the bond selloff weighed heaviest. The 10-year yield spiked to just under 2.79 percent, the highest level since April 2014, renewing speculation that pain in the bond market would spill over into equities. The dollar also fell, losing 0.5 percent against major peers.
Europe:
London House Prices Help Drive Wealth Creation in Britain
London accounts for just one in eight properties owned in England but their impact on the wealth of the country is dramatic. Figures from the Office for National Statistics Thursday showed median net property wealth for households in London was 351,000 pounds ($499,000) between 2014 and 2016, a 33.5 percent increase from the previous two years. The overall value of property in the British capital, where house prices are double the national average, jumped by 38 percent to just over 1 trillion pounds. “The increase in property values in London seems to be one of the main reasons for the increase in aggregate household total wealth in Great Britain,” the ONS said in a report. Total household wealth rose by 15 percent to 12.8 trillion pounds, with the increase being driven by property values and a 20 percent surge in private-pension wealth, the ONS said. Wealth was highest in London and southeast England and the richest 10 percent of households were worth five times more than the bottom 50 percent combined.
Asia:
China Default Angst Flares After Rare Case With Junk Bond
A rare event in a corner of China’s credit market is fuelling concern that more defaults are looming, adding to strains sparked by the government’s crackdown on leverage. A timber company in the country’s northeast decided this week not to pay off perpetual bonds despite having an option to do so. That was a first for a junk-rated issuer of such securities in China. Firms that raise money with perpetual never have to pay off the principal, in theory. But in practice, the bonds usually have coupon rates that increase at set dates along with options letting issuers repay the securities to avoid the escalating interest charges. Companies wouldn’t stomach surging debt servicing costs, the thinking goes, unless they lack the firepower to just retire the whole obligation. And if their finances have deteriorated that much, they may at some point delay interest payments. The concern is acute in China, where firms have turned to perpetual to reduce debt on paper given that the securities can be listed as equity on balance sheets.
