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ICBC Financial Market Daily Review - September 25, 2018
 

I. Yesterday’s News
International News

1. The United States and China imposed fresh tariffs on each other's goods on Monday as the world's biggest economies showed no signs of backing down from an increasingly bitter trade dispute that is expected to hit global economic growth. Soon after the new duties went into effect, China accused the United States of engaging in "trade bullyism" and said it was intimidating other countries to submit to its will, the official Xinhua news agency said. But Beijing also said it was willing to restart trade negotiations with the United States if the talks are "based on mutual respect and equality," Xinhua said, citing a white paper on the dispute published by China's State Council.

2. The recovery in inflation expected by the European Central Bank is conditional on market interest rates staying low through the summer of next year, ECB President Mario Draghi said on Monday. Draghi described an acceleration in underlying inflation in the euro zone as "relatively vigorous" and expressed confidence that a pick-up in wage growth would continue. But he reaffirmed the ECB's pledge to keep rates at their current, rock-bottom level "through the summer" of next year, implicitly rebuffing calls from some policymakers to tighten policy more quickly. Money market investors beefed up their bets on a rate hike in October 2019 after Draghi's words, while the euro and bond yields rose.

3. A committee of European Union lawmakers on Monday backed new rules to prevent large London-based investment banks from carrying out key activities in the EU after Brexit, unless they set up fully-fledged branches in the bloc. The new rules, if approved by EU states and by the whole European Parliament in a second vote, would force foreign investment banks to set up branches in the euro zone if they want to perform services such as proprietary trading and underwriting of bonds and other securities in the bloc. More than half of all European investment firms, including U.S. giants Goldman Sachs and JPMorgan, are based in Britain.

4. Prime Minister Theresa May will discuss Brexit and a bilateral trade deal with U.S. President Donald Trump on Wednesday on the sidelines of the United Nations General Assembly in New York, amid increasing uncertainty over Britain's EU exit plans. A trade deal with the United States is seen as an important way to help offset the economic impact of leaving the EU in March next year. May's government has long touted the freedom to strike such deals independently of the EU as the main economic benefit of Brexit.

5. Iran's oil minister said on Monday that an OPEC meeting did not give a positive response to the demands of U.S. President Donald Trump, saying that the "U.S. dream" to cut Iranian oil exports to zero would not happen. OPEC's leader Saudi Arabia and its biggest oil-producer ally outside the group, Russia, ruled out on Sunday any immediate, additional increase in crude output, effectively rebuffing U.S. President Donald Trump's calls for action to cool the market.

Domestic News

6. The growth of tourists received and revenue realized picked up across China during the three-day Mid-Autumn Festival holiday, tourism regulators said. Ticket prices for tourist attractions are to be cut before October 1. It is expected that tourists during the even-day national holiday will hit record high.

7. China’s stocks jumped, shrugging off U.S.-China trade war that were much lower than expected. While China’s bonds weakened this week, dragged down by rising infrastructure investment. On Friday, cash bond yields inched down, boosted by easing liquidity in anticipation of RRR cut. Treasury bonds futures closed higher. But the sustainability of upbeat impacts on bond market is uncertain as the move by the central bank is to support the real economy. Changes in fundamentals after infrastructure investment is lifted and liquidity after local bonds are issued will determine market sentiment.

8. Morgan Stanley said on Monday it had changed its stance on emerging bonds and currencies to neutral from negative following the recent selloff, though it warned the backdrop for developing markets remained difficult.

9. Chinese hotpot chain Haidilao raised nearly HK$7.56 billion in its Hong Kong initial public offering (IPO). Haidilao, which mainly serves spicy Sichuan style hotpot, sold about 8 percent of its enlarged equity capital at HK$17.80 per share at the top of an indicated range. Its shares are expected to start trading on the Hong Kong stock exchange on Sept. 26. 

II. Market Overview
FX
1. Global Market

The euro rose to a more than a three-month high against the dollar on Monday after European Central Bank chief Mario Draghi said he sees a vigorous pickup in euro zone inflation, backing moves toward unwinding an ECB asset purchase program meant to stimulate the economy. In afternoon trading, the euro rose 0.1 percent against the dollar to $1.1755. It rose as high as $1.1815, a 3-1/2-month peak. Against the yen, the dollar was up 0.1 percent at 112.65 yen. The dollar index was last little changed at 94.192.

2. Home Market

China's FX market was closed for the Mid-Autumn Festival holiday.

Precious Metals

Gold was barely changed on Monday after the dollar dropped following remarks by the head of the European Central Bank then later pared losses, although activity was muted ahead of a U.S. central bank meeting this week. Spot gold ended at $1,198.48 per ounce, giving up earlier gains. U.S. gold futures December delivery settled up $3.10, or 0.3 percent, at $1,204.40 per ounce.

Commodities
1.Crude Oil

Global Benchmark Brent crude jumped more than 3 percent on Monday to a four-year high above $80 a barrel after Saudi Arabia and Russia ruled out any immediate increase in production despite calls by U.S. President Donald Trump for action to raise global supply. Brent crude settled up $2.40 or 3.1 percent at $81.20 a barrel, after touching an intraday high of $81.39, the highest since November, 2014.  U.S. light crude settled up $1.30, or 1.8 percent, higher at $72.08.

2.Base Metals

Copper prices slipped on Monday, but held near 10-week highs hit last week as the market waited to see how the U.S.-China trade dispute would develop after both countries imposed new tariffs on imports. Benchmark copper on the London Metal Exchange traded down at $6,353 a tonne in official rings. The metal, seen as a gauge of economic health, closed at $6,363 a tonne after hitting the highest since July.

U.S. Treasuries
1. U.S. Bonds

U.S. Treasury yields across maturities were steady on Monday afternoon having mostly recovered from early losses on a flurry of conflicting reports about whether Deputy Attorney General Rod Rosenstein, who is overseeing a Justice Department probe into Russia's role in the 2016 election, would leave his post. Rosenstein will meet with Trump on Thursday to discuss his future, the White House announced later Monday morning. The benchmark government bond was last at 3.078 percent. While yields at the short end of the curve only ticked up modestly, the 30-year bond yield was up from its open, last at 3.210 percent.

2. Chinese bonds
China's debt market was closed for the Mid-Autumn Festival holiday.

Stock Market
1. U.S. Equities

The S&P 500 and the Dow closed lower on Monday after a new round of U.S.-China trade tariffs kicked in, dampening last week's hopes for talks between the two countries, and as investors awaited a widely expected interest rate hike by the Federal Reserve. The Dow Jones Industrial Average fell 181.45 points, or 0.68 percent, to 26,562.05, the S&P 500 lost 10.3 points, or 0.35 percent, to 2,919.37, and the Nasdaq Composite added 6.29 points, or 0.08 percent, to 7,993.25.

2. Hong Kong Equities

Hong Kong's main Hang Seng index ended weaker on Monday led by a decline in Chinese property stocks, snapping a four-session winning streak. At close of trade, the Hang Seng index was down 454.19 points or 1.62 percent at 27,499.39, the biggest daily percentage decline since Sept. 5. The Hang Seng China Enterprises index fell 1.8 percent to 10,827.52. Hong Kong financial markets will close for Mid-Autumn Festival holiday on Tuesday. Trade resumes normal on Wednesday.

3. China Equities

China’s stock market was closed for the Mid-Autumn Festival holiday.


(2018-09-25)
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