North American Morning Briefing: Stock Futures Rise Despite Jitters Over China

MARKET WRAPS

Watch For:

U.S. Weekly Jobless Claims; Nike Inc. 1Q earning.

Opening Call:

Stock futures rose, pointing to gains for major indexes as investors remained upbeat that trouble with property giant China Evergrande Group can be contained.

Markets have been consumed this week with questions surrounding Evergrande, China’s largest property developer. Many fear its collapse could spread economic pain through the world’s second largest economy, with spillovers into global financial markets.

The heavily indebted company has issued billions of dollars of bonds to international investors, with many trading for a fraction of their face value.

However, fears around its possible collapse appear to have ebbed-at least temporarily. Evergrande has an $83.5 million coupon payment due Thursday on its U.S. dollar bonds and hadn’t given an indication of whether it will miss the payment.

On Wednesday, the company’s flagship property business said it would make an interest payment on an onshore bond, giving Evergrande more time to work out what investors expect will be a lengthy and complicated restructuring.

Hong Kong-listed shares of Evergrande jumped 18%, though remain down 82% for the year. Hong Kong’s Hang Seng Index, which bore the brunt of the selling pressure at the start of the week, jumped 1%. China’s Shanghai Composite Index rose 0.4%.

“The consensus view is that ultimately the Chinese will control this,” said John Roe, head of multiasset funds at Legal and General Investment Management. “The worry is that if you worry about Evergrande you worry about all the other developers.”

Overseas markets were broadly higher. The Stoxx Europe 600 rose 0.8%, led by shares of technology, auto and retail companies.

Weekly jobless claims data are due at 8:30 a.m. ET. Economists surveyed by The Wall Street Journal estimate that unemployment claims, a proxy for layoffs, declined to 320,000 in the week ended Sept. 18, from 332,000 the prior week.

Also coming, surveys of purchasing managers from a number of large economies will be scrutinized for signs of a further slowdown in global growth during September. IHS Markit is due to release figures for the U.S. service and manufacturing sectors at 9:45 a.m.

The Bank of England is expected to keep monetary policy on hold in the face of rising inflation when the central bank releases its latest decision at 7 a.m.

Investors also were digesting the Federal Reserve’s decision to tee up a reversal of its pandemic stimulus measures in November. New projections released at the end of the Fed’s two-day policy meeting Wednesday showed half of 18 officials expect to raise interest rates by the end of 2022.

That has given money managers confidence the Fed won’t allow the current bout of inflation to become entrenched, according to Mr. Roe. “The most interesting thing about both the current statement and also the last couple of statements has almost been a rowing back on the idea they’re really going to let inflation rip before they take action,” he said.

Forex:

The dollar should strengthen after the Fed signaled that it could start tapering asset purchases as early as November while interest rates could rise by the end of next year, MUFG said.

Although many in the market had anticipated a more cautious tone from the Fed, the dollar’s reaction overnight was modest, as the currency had already risen in advance of the meeting, said MUFG currency analyst Lee Hardman.

“Overall the hawkish policy signals should encourage a stronger U.S. dollar especially against low yielding currencies like the euro,” he said.

The Bank of England’s policy decision later represents a major risk event for sterling, said Lukman Otunuga, senior research analyst at FXTM. Markets widely expect the central bank to leave monetary policy unchanged, with traders’ focus likely to turn to bank officials’ comments on inflation, he said.

Sustained weakness in GBP/USD below 1.3670 could open a path back down towards the July low at 1.3570, he said. Conversely, a solid move above 1.3670 could prompt an advance towards 1.3750.

The Swiss franc edged lower after the Swiss National Bank held its policy rate at minus 0.75%, as expected, and reiterated that the currency “remains highly valued.”

The euro rose 0.3% as it continued to recover after falls that took it briefly below $1.1700 following the Fed announcement. The currency shrugged off weaker provisional eurozone purchasing managers’ indexes for September.

“There are increasing signs that the euro area economy will not be able to maintain the high pace of growth in the final quarter,” said Commerzbank economist Christoph Weil. He notes, however, that price indexes point to “continued high inflationary pressure.”

Bonds:

In the bond market, the yield on 10-year Treasury notes ticked down to 1.331% from 1.332% Wednesday.

Eurozone government bond yields were trading higher after the Fed announcement.

“A hawkish Fed is moving ‘ahead of the curve’ and markets have little time to catch their breath,” Christoph Rieger, head of rates and credit research at Commerzbank, said.

Commodities:

Oil prices rose thanks to rising equity markets and risk sentiment. Brent continued higher Thursday to around its highest since mid-July despite the release of what DNB Markets’ Helge Andre Martinsen described as the EIA’s release of bearish-to-mixed inventory data on Wednesday.

Despite those figures, API readings released Tuesday were remarkably more upbeat and broader context shouldn’t be ignored, he said. “We started the year with total petroleum inventories above the five-year high and is now established below the five-year low, a remarkable transition,” Martinsen said.

Gold weakened after the Federal Reserve signals tapering could start as early as November. “The gold price–surprisingly, in our opinion–did not react much to the Fed’s hawkish signals and statements. Presumably this was due in part to the fact that the U.S. dollar appreciated only slightly and bond yields hardly change,” said Commerzbank.

Three-month copper on the LME wavered between gains and losses. The metal was last up 0.3% at $9,299 a metric ton.

TODAY’S TOP HEADLINES

New Platform Backed by Fidelity, Goldman Seeks to Bring IPO Market Into Digital World

A new technology platform backed by the biggest U.S. banks and money managers is aiming to bring the IPO market into the 21st century.

The syndicate desk-a longtime fixture at banks across Wall Street where IPOs and other large stock sales are priced and allocated to investors-has long clung to traditional ways of doing business like phone orders and scribbled pieces of paper, even as other businesses go digital.