Date: July 1, 2019
Stocks Climb Globally on Trade Truce; Oil Rallies: Markets Wrap
“U.S. stock futures rallied, with semiconductor shares leading the charge after President Donald Trump agreed to ease a ban on American companies supplying Chinese tech giant Huawei. Gold, the yen and Treasuries all retreated. Contracts on the Nasdaq 100 Index jumped 1.8%, with chipmakers from Micron Technology Inc. to Skyworks Solution surging more than 5% on speculation they’ll be able to supply on their biggest customers in Huawei. The gains put the S&P 500 Index and Dow Jones Industrial average on track to surpass all-time closing highs, as industrial and farm stocks joined the trade-fomented advance. Semiconductor shares in Asia and Europe also rallied. “The odds of another full blown conflict have moderated as the U.S. administration is de-escalating,” Sebastien Galy, senior macro strategist at Nordea Investment, wrote in a note on Monday. “That being said, there are still a lot of reasons to be cautious.” Losses in haven assets turned muted overnight after a series of weak factory reports from major economies reaffirmed speculation that global central banks will remain on track with easier monetary policy. U.S. manufacturing data is due after markets open. The 10-year Treasury yield climbed as much as four basis points before cutting that in half. Gold fell 1%, trimming a plunge that earlier topped 2%. Crude surged, sending West Texas Intermediate toward $60 a barrel, after major producers agreed to extend output cuts. Stocks in Shanghai and Tokyo led Asian gains, while markets in Hong Kong were closed for a holiday as a new wave of unrest hit the city.”
ECB’s New Chief Economist Sees Room for Stimulus on Weak Prices
“The European Central Bank’s new chief economist used his first speech in the role to claim past monetary stimulus has been effective and more is available if needed. Philip Lane, who joined the Executive Board in June, echoed President Mario Draghi’s recent remarks that there is room to cut interest rates from record lows or resume bond purchases to boost inflation amid the current economic slowdown. The euro zone is struggling under a manufacturing downturn driven largely by global trade tensions, and a gauge of factory activity published Monday showed factories still stuck in a slump. Lane also said the ECB’s long-term bank loans and a communication strategy provide complementary support. “The effectiveness of the policy toolkit means that we can add further monetary accommodation if it is required to deliver our objective,” he said at a conference in Helsinki. “It is essential that a central bank shows consistency in its monetary policy decisions by proactively responding to shocks that might delay convergence to the target or move inflation dynamics in an adverse direction.” Investors and economists predict that the ECB will cut interest rates as soon as this summer. The deposit rate is already at a record low minus 0.4% and the central bank only capped its 2.6 trillion-euro ($3 trillion) quantitative-easing program at the end of last year. Lane said the ECB’s latest adjustment to its communication on interest rates — a pledge to keep them on hold through at least the first half of 2020 — isn’t “intended to ratify market views.” Rather, it offers an idea of the most likely path foreseen by the Governing Council given the current state of the economy.”
China Plans to Tighten Rules on $2 Trillion Corner of Market
“China’s banking regulator plans to tighten rules on so-called cash-management products, according to people familiar with the matter, impacting an estimated $2 trillion worth of the investments. The China Banking and Insurance Regulatory Commission aims to treat CMPs similar to money-market funds by imposing stricter rules on pricing and restricting where and for how long the inflows can be invested, the people said, asking not to be identified as the deliberations are private. CMPs are issued by banks and are more liquid than money market funds, which are sold by asset managers. Looser regulation of CMPs currently allow banks to offer higher yields than those on money-market funds and the CBIRC’s changes could damp their investment appeal, the people said. The moves are another step in China’s fight against financial risk as policy makers try to contain the fallout from rising defaults and a slowing economy. “CMP yields will drop and gradually lose their comparative advantage over money market funds,” said Liao Chenkai, a Shanghai-based analyst at Capital Securities Corp., who predicts some decline in banks’ fee income. “But given that most investors buy the products for their liquidity instead of yield, I don’t expect a significant hit to the scale of the market,” he said. Money market funds, overseen by the securities regulator, cap duration of their investments at an average 120 days while there’s no limit for CMPs. The CBIRC also wants to make pricing stricter by curbing so-called deviation, the people said. The CBIRC didn’t immediately reply to a fax seeking comment. Asset managers are allowed to calculate the net asset value of a money-market fund in two ways. However, when the NAV under one method deviates beyond a specified level from the other, the fund is required to take measures such as limiting new subscriptions or even liquidate assets.”
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