Dollar Pressured as Treasuries Steady; Stocks Gain: Markets Wrap
The dollar hit the weakest level in three years and Treasuries stabilized after a recent selloff as investors weighed the prospect of a U.S. government shutdown and signs of inflation picking up. Stocks in Europe and Asia advanced and gold jumped. The greenback pared some of its drop but was still headed for a sixth week of losses before temporary U.S. government funding runs out on Friday. The yield on 10-year Treasuries briefly rose above 2.64 percent for the first time since 2014 before falling back.The moves in American assets dominated global markets, with the euro, yen, gold and base metals among the beneficiaries of dollar weakness. The risk-on mood that helped drive up Treasury yields this week was still in evidence, with European stocks following Asian peers higher, U.S. futures green and emerging-market equities climbing for a sixth day. West Texas crude extended a retreat.
This Monopoly Is Holding Back the Mortgage Market
If you apply for a mortgage in the U.S., chances are your credit score will be generated by an algorithm better suited to the economy of the 1990’s — part of an ossified system that could be denying millions of otherwise qualified Americans the opportunity to buy a home. Regulators are considering an update. What’s really needed is a rethink.Perhaps no number is more important to U.S. consumers than their credit score. It can determine everything from the size of the required deposit on a rental apartment to the interest rate on an auto loan. When they work well, credit scores grease the wheels of the economy by giving businesses a rough first sense of who might qualify for a loan or service.
Higher Yields in 2018 Don’t Mean Market Turmoil
The performance of U.S. Treasuries in 2017 confounded many, as the bonds kept to range-bound trading in the context of both higher growth and rate tightening by the Federal Reserve that went beyond initial market expectations. Therefore, it should come as no surprise that the recent move up in yields has triggered so many reactions, including warnings that we may be at the end of one of modern history’s greatest bull markets for fixed income. Yet, while the specific level of yields is important, the nature of the move and its drivers will play an equal, if not greater, role in determining the broader economic and market effects. The benchmark yield on U.S. government bonds traded in just a 30 basis-point range for most of last year. The absence of both higher yields and greater volatility in bond markets was notable given what happened elsewhere in markets and the economy. The 2017 surge in stock prices, including 71 record daily closes for the Dow Jones Industrial Average, would normally be associated with a rise in yields. The same would be true of the recent pick-up in global growth, which is synchronized among the major economies, driven more by genuine economic forces as opposed to financial ones, and increasingly sensitive to reinforcing interactions among consumption, investment and trade. And if that’s not enough to drive yields higher and make them more volatile, surely a more hawkish Fed would have the same effect.
Asian Stocks Are at Cheapest Relative to U.S. in Years
Even after handily beating American stocks last year, Asian shares have actually got cheaper relative to their U.S. counterparts. On a forward price-to-earnings basis, the MSCI Asia Pacific is trading close to at least a 13-year low relative to the S&P 500, according to data compiled by Bloomberg. And on a price-to-book basis, it is at the cheapest in 16 years. According to Mark Tinker, head of AXA Framlington Asia in Hong Kong, emerging market equities, which tend to have a heavy representation of Asian shares, are as cheap against their U.S. counterparts as they were after the Asian financial crisis in 1997.“This is extraordinary for a number of reasons,” he wrote in a recent note to clients. “First and most obviously Asia is in a very different economic position than it was then. Earnings are growing steadily, balance sheets are strong, real wages are rising, dividend payouts are high and payout ratios are rising.” Most important for Tinker however is the fact that 20 years ago Chinese GDP was less than $1 trillion and that since 1997, it has grown by a multiple of 11 times.
Chinese Region’s Fake Data in Focus After Local Borrower Downgrade
A local state-owned company in China’s Inner Mongolia, a region that recently admitted having inflated key economic data, has suffered a credit rating downgrade.Fitch Ratings cut Inner Mongolia High-Grade Highway Construction and Development Co.’s long-term foreign- and local-currency issuer default rating to BBB- from BBB, citing the local government’s revision of its fiscal figures, according to a statement late Thursday. That follows its downgrade of an internal assessment of the creditworthiness of the Inner Mongolia region, the statement said. Investors are growing more concerned about local credit risks as the government steps up efforts to curb leverage and two regions have admitted faking data. The northeastern province of Liaoning said last year that it had fabricated fiscal numbers from 2011 to 2014. Earlier this week, a local trust loan company delayed payments to investors on products tied to local borrowings in the southwestern province of Yunnan, people familiar with the matter said.
Strength Against the Dollar Isn’t Enough for the Pound
The pound touched a new post-Brexit vote high against the dollar on Friday and investors are clamoring to go long, but analysts urge caution. While on the face of it the U.K. currency has seen a recovery, in reality it is more about the greenback, according to Society General SA strategist Kit Juckes. In sync with sterling’s strength, the global reserve currency has fallen more than 2 percent since the start of January. “I look at the trade-weighted chart and the pound really hasn’t moved up from the bottom of the long-term range. It’s still very weak,” said Juckes. “What the euro does is far more important for the trade-weighted value of sterling than what the dollar does.” Recent U.K. data have been mixed, with retail-sales numbers Friday missing estimates, while positive news on the Brexit talks has yet to translate into actual progress. This means that if the dollar recovers, sterling could find its advance evaporating. “I see a massive risk of that,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA. “The U.S. economy is strong, rates are about to be hiked with more to come and the long euro-dollar trade is full.” The change in sterling’s fortunes has analysts looking at key technical levels for clues to the pound’s fate. The British currency reached $1.3945 on Friday, its highest level since June 24, 2016, the day after Britain’s European Union referendum. The level of $1.3850 is key for this week and finishing below that could embolden investors to go short, said Juckes.