Date : July 17, 2018
Stocks Drop as Traders Await Powell; Oil Steadies: Markets Wrap
U.S. equity futures fell alongside European stocks as investors digested a flood of earnings as well as prepared for the latest clues from the Federal Reserve on monetary policy in the world’s biggest economy. Most commodities climbed, as oil steadied. Futures on the Nasdaq slumped as Netflix Inc. tumbled in pre-market trading after delivering disappointing subscriber growth. Results from Goldman Sachs narrowly beat investor expectations, while trading revenue disappointed. On the Stoxx Europe 600 Index, gains in mining and chemicals shares were outweighed by declines in telecommunications and household goods. Japanese stocks outperformed in Asia, while the yen held close to its weakest level since January. Treasuries edged higher with most European sovereign bonds, as the Bloomberg Dollar Spot Index halted three days of declines. Earnings and U.S. monetary policy have become the main drivers of market sentiment this week. That’s giving respite from a backdrop of worsening trade relations between the world’s biggest economic powers. Company results have been mixed thus far, with Deutsche Bank AG and Bank of America Corp. beating estimates, counterbalancing the Netflix reading. Later Tuesday, Fed Chairman Jerome Powell will likely make the case for further tightening in testimony before a U.S. Senate panel, with markets pondering whether he’ll strike a more hawkish tone than Federal Reserve Bank of Minneapolis President Neel Kashkari, who said there’s little reason to raise rates much further. “I doubt he’ll surprise the market with hawkishness,” Societe Generale global fixed income strategist Kit Juckes wrote in a note. “The U.S. economy is in good shape, but the President is laying waste to the global synchronized growth theme.” Commodities climbed after Monday falling to the lowest in 11 months as crude traded in New York steadied at about $68 a barrel. Emerging market stocks headed lower for a second day. The New Zealand dollar jumped after the central bank’s core inflation measure accelerated at the fastest pace in seven years.
BOE’s Carney Nudged Step Closer to Rate Hike by Jobs Numbers
U.K. employment rose to a record high in the three months through May and wage pressures showed few signs of abating, keeping the Bank of England on course for an interest-rate increase next month. The number of people in work rose by 137,000, more than forecast, taking the employment rate to 75.7 percent, the highest since records began in 1971. While headline measures of wage growth eased modestly, an underlying gauge climbed to the highest since January. The pound rose following the data, which point to continued strength in the labor market and reinforce expectations for a rate hike in August. Money markets are pricing in an 80 percent chance of tightening, while a majority of economists in the latest Bloomberg survey also predict a move. The report from the Office for National Statistics on Tuesday also showed that unemployment held at a 43-year low of 4.2 percent. Earnings growth excluding bonuses slowed to 2.7 percent, as forecast, but that’s still well ahead of year earlier levels. On a three-month annualized basis, private-sector wage growth jumped to a four-month high of 2.8 percent. BOE Governor Mark Carney and fellow policy makers have cited strength in the labor market and limited spare capacity as reasons to raise rates again, though they’ve not said exactly when they’ll do that. Three of nine officials voted to tighten in June, with the majority willing to wait to assess the economy’s recovery from a snow-blighted first quarter. Overall, the figures point to healthy demand for labor, with the number of vacancies rising to the highest since records began in 2001 and the rate of inactivity — people neither in work nor looking for a job — falling to an all-time low.
India Is Said to Ready PNB Capital Injection to Aid Bond Payment
India is preparing to infuse about 20 billion rupees ($290 million) into Punjab National Bank by next week to help it meet dues on its perpetual bonds, people familiar with the matter said. India’s third-largest state-run lender will issue preferential shares to the government, the people said, asking not to be named as the information isn’t public. This will help restore capital to the level needed to pay the coupon that’s due July 25, they said. PNB needs to pay about 1.35 billion rupees to cover the 8.98 percent annual interest on 15 billion rupees worth of so-called AT1 bonds sold in July 2017. Unless PNB gets fresh capital in time, it may be unable to make the payment because an unprecedented loan-fraud wiped out its profits and pushed the bank’s capital below mandated levels, according to the local unit of Fitch Ratings. PNB’s core tier I capital was at 5.96 percent as of March 31, below the Reserve Bank of India’s minimum required 7.375 percent. “A plain reading of the RBI’s rules could be interpreted as if the bank is below the minimum core tier I capital requirement, they would face restrictions on payment of coupon,” said Prakash Agarwal, head of the financial institutions group at India Ratings & Research, the local unit of Fitch. “The government is expected to step in.” A spokesman for Punjab National Bank said the bank will be making the coupon payments on the due date, subject to regulatory approvals. He didn’t provide any further details. Two calls made to Finance Ministry’s spokesman D.S. Malik were unanswered. PNB shares rose 6.6 percent in Mumbai, the biggest gain since October. “News of the immediate capital infusion boosted shares of PNB,” said Nilesh Dedhia, director at NTD Trading Ltd.