May 28, 2018
United States:
U.S. Stock Futures Rise as Trump-Kim Summit Appears Back On
U.S. stock futures rose in Asian trading as President Donald Trump appeared to confirm the summit with North Korean leader Kim Jong Un was back on, three days after it was abruptly called off. S&P 500 Index futures climbed 0.5 percent at 7 a.m. in London. Nasdaq 100 futures added 0.6 percent, while those on the Dow Jones Industrial Average rose 0.4 percent. U.S. markets will be closed Monday for Memorial Day. The risk-on in U.S. stock futures comes as the State Department confirmed reports that a U.S. delegation is meeting with North Korean officials to prepare for the summit, which had been set for June 12 in Singapore. Monday’s advance pared losses incurred after Trump canceled the meeting last Thursday. “We’re seeing a positive start to the week just because of that North Korea flip,” said Nick Twidale, chief operating officer of Rakuten Securities’ Australian unit. “Into Europe today, there will be a lot of focus on the oil market and Italy.” U.S. stocks fell 0.2 percent on Friday after oil tanked the most in 11 months on concerns over more supply from OPEC. Italy sank deeper into political uncertainty after President Sergio Mattarella rejected euro-skeptic Paolo Savona as finance minister.
Europe:
Italian Banks Lead Stock Declines After Government Plan Unravels
Italian banks led European financial stocks lower as the growing likelihood of new elections shook investor confidence. Banca Monte dei Paschi di Siena SpA, the habitually-volatile state-rescued bank, led declines with a drop of as much as 7.8 percent. The eight worst performers on the Bloomberg Europe Banks Index were all Italian lenders as of 12:07 p.m., with UniCredit SpA losing almost 4 percent and Intesa Sanpaolo SpA down about 3 percent. At least a part of the pressure on equities came from the bond market. The yield on Italy’s benchmark 10-year sovereign bonds surged again on Monday to over 2.60 percent, it highest in nearly four years. Populist leaders of the Five Star Movement and League party pulled the plug on their attempt to form a government Sunday after President Sergio Mattarella rejected the choice of a euro-skeptic, Germany-bashing candidate as finance minister. Mattarella on Monday nominated Carlo Cottarelli, a former International Monetary Fund official and latterly the head of a broad review into Italy’s government spending, as prime minister-designate to form a proposed government. However, his proposal is almost certain to be rejected by parliament, leading to a new vote as soon as September. The political situation is “clearly unfavorable” to the rebound of Italian lenders as well as to banks exposed to Italy, such as France’s BNP Paribas SA and Credit Agricole, Natixis said in a note on Monday. Despite “solid fundamentals” BNP, Agricole, UniCredit and Intesa will all see continued pressure, the brokerage said. The financials index was down 0.8 percent, taking the decline for this year to 7.3 percent.
ECB Tests Flavour of Inflation as Big Policy Discussion Looms
This isn’t the inflation the European Central Bank is looking for — but it is inflation. Figures this week are forecast to show euro-area consumer-price growth could have reached its fastest since early 2017 on the back of more expensive oil and a rebound in travel costs. The cost of crude and a weaker euro are also set to bolster a more significant set of numbers out in June — new ECB projections that will help policy makers determine whether the time has come to scale back asset purchases. Some Governing Council members have signaled their confidence in the inflation path is sufficient to consider ending bond buying this year. An upward revision in forecasts may convince other officials who so far haven’t seen enough progress to start discussing an exit strategy. Policy makers’ assessment is complicated by an economic slowdown in the 19-nation euro region. Long shrugged off as temporary, a range of indicators have hinted at something more protracted. There’s also Italy’s descent into political turmoil as populist leaders pulled the plug on their attempt to form a government, raising the prospect of new elections. “They seem to be very strongly-minded to end net asset purchases and it will probably take more for them than this recent weakness to go for another extension,” said Nick Kounis, an economist at ABN Amro in Amsterdam. “A higher headline rate creates a nice kind of window-dressing.” A survey of economists puts the median estimate for May inflation at 1.6 percent, up from 1.2 percent in April. Some, including Bloomberg Economics, even see it hitting 1.8 percent. Price growth in Germany, France, Italy, Spain is also forecast to pick up, largely reflecting external or seasonal effects.
Asia:
China’s Equity Market Is About to Score a Rare and Timely Win
For only the third time since 2016, China’s domestic stocks are on track for a monthly gain that outpaces those listed offshore. While the margin’s narrow, it’s a small win for mainland shares that bodes well for their big debut on MSCI Inc.’s global benchmarks this week. The Shanghai Composite Index is up 1.9 percent in May, on track to halt a three-month losing streak, while the MSCI China Index has gained 1.6 percent. Onshore stocks have been perennial laggards, struggling to recover from a boom and bust that shook investor confidence in the country’s $7.6 trillion equity market three years ago. With international money about to trickle into A shares, the rebound in May stands out at a time when emerging markets all over the world are selling off. “It comes at a convenient time because of the scrutiny being given to the A share market by international investors,” said Howard Wang, who oversees JPMorgan Asset Management’s Greater China fund in Hong Kong. “It caught that tailwind just when it needed it.” To be sure, gains in Shanghai don’t tend to last. Just last week, what looked like a bullish start for the onshore gauge had unraveled by Wednesday, ending with its first weekly loss in five. The whipsawing shows just how much sentiment onshore is vulnerable to any shift in language on global trade, as well as policy changes elsewhere that can hit an entire sector as huge as oil. From June 1, MSCI will feature distiller Kweichow Moutai Co., brokerage Guosen Securities Co. and more than 200 other locally listed Chinese companies in its benchmark equity gauges. While the weighting of the shares will initially be tiny relative to the size of the market, the index provider said last week that this will increase faster than expected. At less than 12 times projected earnings, the Shanghai Composite is about 7 percent cheaper than the MSCI China, data compiled by Bloomberg show. The discount is near its widest since 2014, a gap which Morgan Stanley strategists say will close as China’s capital markets open up, as long as trade concerns subside. They see a 10 percent gain for A shares by June 2019, based on a 4,200 target for the CSI 300 Index, compared with the 1.9 percent decline they see for the MSCI China, according to a May 13 note.