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Stocks, U.S. Equity Futures Rise on Growth Outlook: Markets Wrap

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Sunil Jagtiani
·3 min read
Stocks, U.S. Equity Futures Rise on Growth Outlook: Markets Wrap
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(Bloomberg) -- Most Asian stocks rose along with U.S. equity futures Friday after solid economic data and President Joe Biden’s federal spending plans spurred a Wall Street rally in cyclical shares. Treasury yields climbed.

Japanese stocks led gains and MSCI Inc.’s Asia-Pacific equity gauge was set for the highest close in a month. Chinese shares bucked the trend, dropping for the first time this week. Earlier, industrial and financial equities fueled a modest overall increase in the S&P 500, while small-caps outperformed and the tech-heavy Nasdaq 100 slipped. European contracts were in the green.

U.S. data included a drop in jobless claims to a fresh pandemic low. Biden is reportedly set to unveil a budget that would take federal spending to $6 trillion in the coming fiscal year.

The 10-year U.S. Treasury yield reached 1.62% amid growth optimism and concerns of more debt supply to fund spending. The dollar rose and the yen fell as Japan recommended extending a state of emergency that spans Tokyo to curb infections. China signaled the yuan’s recent appreciation is too rapid with a weaker-than-expected reference rate.

Global stocks are set to climb for a fourth month, supported by the economic rebound from Covid-19. Comments from Federal Reserve officials have helped temper fears that inflation could spark a faster-than-expected reduction in stimulus. Treasury Secretary Janet Yellen said she sees the burst in prices as temporary, though likely to last through the end of 2021.

“Between now and year end, we see a little more room for stocks to move up from where they are today and the highs they already achieved earlier this year,” Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets LLC, wrote in a note. “But we don’t think that the path to get there will be smooth and think a short-term pullback before the year is up remains likely.”

Elsewhere, oil climbed to a more than two-year peak but gold and copper retreated. Bitcoin slipped further below the $40,000 level.

Several Chinese commodity firms pared back their bullish futures bets at the request of the government, according to people with knowledge of the matter, a further sign of Beijing’s concern over this year’s surge in raw materials.

For more market commentary, see the MLIV blog.

These are some of the main moves in markets:

Stocks

S&P 500 futures increased 0.2% as of 7 a.m. in London. The gauge rose 0.1%Nasdaq 100 contracts added 0.1%. The gauge fell 0.3%Japan’s Topix index rose 1.9%Australia’s S&P/ASX 200 was up 1.2%South Korea’s Kospi index climbed 0.9%Hong Kong’s Hang Seng index added 0.1%China’s Shanghai Composite index dipped 0.5%Euro Stoxx 50 futures increased 0.3%

Currencies

The Bloomberg Dollar Spot Index pushed 0.1% higherThe euro was at $1.2178, declining 0.1%The British pound was at $1.4187, slipping 0.1%The Japanese yen dipped to 109.86 per dollarThe offshore yuan was at 6.3674 per dollar, up 0.1%

Bonds

The yield on 10-year Treasuries was at 1.61%Australia’s 10-year yield increased six basis points to 1.69%

Commodities

West Texas Intermediate crude rose 0.3% to $67.05 a barrelGold was at $1,891.90 an ounce, down 0.3%

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©2021 Bloomberg L.P.

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Huarong Securities says there has been no major change to its operations, in response to a price plunge for its 3 billion yuan local bond.April 1China Huarong announces a delay in releasing 2020 results, saying its auditor is unable to finalize a transaction. Stock trading is suspended and spreads jump on the firm’s dollar bonds while China Huarong tells investors its business is running as usual. Caixin reports the company submitted restructuring and other major reform plans to government officials and shareholders.More stories like this are available on bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

  • China’s Import Scrutiny Spurs U.S. Corn Cancellations

    (Bloomberg) -- China is clamping down on some corn imports amid concern that overseas purchases have spiraled out of control, prompting several feed mills to cancel their U.S. cargoes.Chinese customs authorities are restricting imports into free trade zones, which aren’t counted toward an official annual purchase quota, according to people with knowledge of the matter. Total U.S. corn cancellations are estimated to be less than 1 million tons, said two of the people, who asked not to be identified as the matter is private.The increased scrutiny by Beijing over its corn imports comes as the broader market focuses on whether the country will continue its heightened purchases of raw materials from grains to metals to fossil fuels. Prices across a variety of products have soared this year partly because of Chinese demand, raising import costs and sparking fears over inflation in the Asian nation.Corn futures in Chicago fell as much as 2% before erasing losses as traders determined the scrapped purchases aren’t big enough to alter an already tight supply situation. Some market watchers claim China, which is forecast to import a record amount of corn this year, is trying to get a better deal after prices recently surged above $7 a bushel for the first time since 2013.“China is playing a negotiating game,” said David Martin, founder of Martin Fund Management in New York.China’s crackdown on corn purchases is targeted at businesses that have set up blending facilities in the free trade zones, according to the people familiar with the matter. These facilities allow firms to mix the imported corn with other raw materials to produce livestock feed that enable them to profit from zero-tariff imports, the people said.Calls to Chinese customs outside business hours went unanswered.Illinois corn farmer Matt Bennett, a co-founder of commodities brokerage and consulting firm AgMarket.net, noted that China has a pattern of crop-import cancellations only to start “buying the daylights out of stuff.”The canceled shipments are a small amount compared to more than 20 million tons of American corn that China has purchased this season. The Asian nation has been a key source of demand for the grain to feed its recovering hog herd, helping to push prices to multiyear highs. Imports from the U.S. have soared as Beijing also seeks to fulfill its commitments for the “phase one” trade deal signed with the U.S. in January 2020.The latest move by China “is likely to have only a very small impact on China’s compliance with the overall purchase commitments on the phase one agreement,” said Chad Bown, an expert at the pro-trade Peterson Institute for International Economics in Washington. “Corn is just too small a portion of the overall deal.”Corn QuotasChina allocates annual corn import quotas to state and private firms. State-owned Cofco Corp. may at times receive an allowance to buy an additional amount that it resells domestically to private mills or to replenish state reserves.The quotas for 2021 are set at 7.2 million tons. Imports outside the quota are possible, but may incur tariffs of up to 65% of the purchase price. Shipments into bonded zones are exempt from duties.The proliferation of businesses that are shipping corn into bonded zones and blending them for animal feed has alarmed authorities, who are seeking to control imports and maintain the quality of feed products.Last month, Shandong province shut down a feed producer located at a local bonded zone after its product was found to have fallen short of protein requirements. The plant mainly blended corn with a low amount of distillers dried grains, or DDGS, said one of the people.All the cancellations will be of old U.S. corn crop from the 2020-21 marketing year, the people said. More than 15 million tons of American corn have been purchased for state stockpiles from old and new crops, two of the people said.(Corrects spelling of Bown’s name in 10th paragraph in story published May 26.)More stories like this are available on bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

  • Slowly But Surely, Central Banks Are Signaling Policy Shifts

    (Bloomberg) -- Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.Central banks are beginning to tip toe away from their emergency monetary settings, with South Korea following in the footsteps of New Zealand and Canada to flag a potential interest-rate increase.As vaccines roll-outs continue and economies reopen, traders have been slowly dialing up expectations on rate hikes or a slowing of asset purchases elsewhere too. Markets are seizing on the tightening narrative, with bond yields and currencies fluctuating as investors recalibrate their bets. The Bank of Korea became the latest on Thursday to signal a turn when Governor Lee Ju-yeol said policy makers are preparing for an “orderly” exit from its record-low interest rate at some point as the economy recovers. The shift in stance came a day after New Zealand’s. New Zealand’s outlook was much more hawkish than expected and may yet signal a global shift, according to Sharon Zollner, chief economist at ANZ Bank New Zealand in Auckland. “We can’t rule out that the tail may wag the dog, influencing global market expectations of whether other central banks may also take a more hawkish turn,” she said.Financial markets have already brought forward pricing of the Federal Reserve’s first rate hike by almost a year since early February. Over the same period, market expectations from the Bank of England have switched from rate cuts by late 2022 to a rate increase, while investors have almost abandoned bets on further European Central Bank reductions to instead price in a 10 basis-point upward move by the end of 2023.Taper Talks With major central banks embroiled in bond buying and other easing programs which traditionally get wound down first, most rate hikes remain some way off. But talk of a taper in asset purchases is catching on.Fed Vice Chair Richard Clarida told Yahoo! Finance in an interview Tuesday that there may be a point in upcoming policy meetings where officials can discuss scaling back purchases. Fed Vice Chairman for Supervision Randal Quarles said on Wednesday that it will be important for the central bank to begin discussing in coming months plans to reduce its massive bond purchases if the economy continues to power ahead.The BOE has slowed bond-buying and signaled that it’s on course to end that support later this year. Australia’s central bank has set July as a deadline for deciding on whether to extend purchases.Norway is on track to start a hiking cycle, and Iceland has already begun. The Bank of Canada announced last month a reduction in debt purchases as it forecast a faster economic recovery that may pave the way for rate increases next year.Turning Point“The shift in monetary policy is starting,” said Alicia Garcia Herrero, Hong Kong based chief economist for Asia Pacific at Natixis, who used to work for the ECB and International Monetary Fund.Detailing its new outlook, the Reserve Bank of New Zealand on Wednesday published forecasts for its benchmark rate -- for the first time in more than a year -- that show the rate beginning to rise in mid-2022. To be sure, this shift is still conditional. RBNZ Governor Adrian Orr said the bank’s outlook is predicated on the economy recovery continuing as vaccines roll out and the pandemic is contained. In a similar vein, BOK’s Lee said the board unanimously agreed to hold rates at a record low on Thursday as pandemic uncertainties persist. The Fed’s Clarida also qualified his remarks around employment data and how inflation pressures play out, which he expects to be transitory. It’s also the case that not every central bank is signaling a policy move, not least in the euro zone, where ECB Executive Board member Fabio Panetta said on Wednesday that he hasn’t seen a shift in the economic outlook to justify a reduction in bond purchases.In emerging markets, the shift is splintering. Hungary’s central bank said this week it was ready to deliver monetary tightening, and Russia, Turkey and Brazil have already hiked. The People’s Bank of China is holding the line with relatively disciplined stimulus, while others continue to support growth as the virus continues to spread.“There is growth divergence due to a much slower vaccination process in the emerging world and renewed waves,” said Garcia-Herrero. “They will suffer from a double whammy as the Fed starts moving towards tapering.”(Updates with Bank of Korea policy announcement.)More stories like this are available on bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

  • Carl Icahn Says He May Get Into Cryptocurrencies in a ‘Big Way’

    (Bloomberg) -- Activist investor Carl Icahn is interested in getting into cryptocurrency in a “big way,” and may eventually put more than $1 billion into an alternative currency.While Icahn hasn’t bought any cryptocurrency yet, the billionaire investor said in a Bloomberg TV interview that he studies Bitcoin, Ethereum and the crypto sector as a whole to determine where the opportunities are. Alternative currencies are gaining popularity as a natural manifestation of inflation in the economy, he added.Any criticism around cryptocurrency having no underlying value is a “little wrong-headed,” Icahn said.“Well, what’s the value of a dollar? The only value of the dollar is because you can use it to pay taxes,” he said. “I’m looking at the whole business, and how I might get involved in it.”Icahn also said he believes people are looking at alternative currencies because parts of the equities market are being traded at “ridiculous prices.” He referred not only to those being driven up as so-called meme stocks, but also certain strategies being offered by money managers.“I don’t think Reddit and Robinhood and those guys are necessarily bad, I think they do serve a purpose,” Icahn said. “Money is funneling back into companies. Some of these companies might be OK, but a number of them, the risk-reward is absurd.”More stories like this are available on bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

  • Bayer hit by failure to cap risk from weedkiller cases

    FRANKFURT (Reuters) -Bayer shares dropped as much as 5% on Thursday after a U.S. judge rejected its plan to try and limit the cost of future class action claims that its Roundup weedkiller causes cancer. The German group called into question the future sale of glyphosate-based products to gardeners in the U.S., and said it would review plans to settle around 30,000 legal claims, after the judge called Bayer's plan to end years of litigation "unreasonable" on Wednesday. Bayer will be spared payouts related to future cases it had outlined in its plan this year and next but will continue to set aside $2 billion for the risk of further claims, reflecting its view that there were no fundamental changes in the outlook.

  • Ford says it will spend $30 billion to fuel its electric vehicle future

    Ford sets some ambitious electric vehicle and financial goals at its latest investor day. Here's what we know.

  • World Faces Longer Supply Shortage as China’s Factories Squeezed

    (Bloomberg) -- Eric Li’s factory making glass lampshades for companies including Home Depot Inc. is being stretched to its limits with sales doubling their pre-pandemic level.But like many Chinese manufacturers, he doesn’t plan to expand operations -- a reticence that could slow the pace of China’s economic growth this year and prolong a shortage of goods being felt around the world as demand picks up.Surging prices of raw materials means “margins are compressed,” explains Li, owner of Huizhou Baizhan Glass Co. Ltd., in the southern Chinese province of Guangdong, which makes about $30 million in annual revenue. With the global economic recovery still uneven, “the future is very unclear, so there is not much push to expand capacity,” he adds.The combination of higher input prices, uncertainty about export prospects and a weak recovery in domestic consumer demand meant Chinese manufacturing investment from January to April was 0.4% below the same period in 2019, according to official statistics (comparing to 2019 strips out the distortion of last year’s pandemic data).Due to the vast size of China’s manufacturing sector, that poses a risk both to the nation’s growth -- which is currently predicted to reach 8.5% in 2021, according to a Bloomberg tally of economists’ estimates -- and to a global economy that’s grappling with supply shortages and rising prices.Falling ProfitsWeaker-than-expected investment could have a “sizable” impact on GDP growth this year, said Citigroup Inc.’s China economist, Li-gang Liu. Lower investment may dent imports of capital goods and equipment from developed economies like Japan and Germany, “which in turn could drag their economic recovery and rebound as well,” he added.AnHui HERO Electronic Sci & Tec Co. Ltd. is one of those companies feeling the squeeze. Based in the eastern province of Anhui, the company manufactures capacitors used to make electronic circuits, with sales mainly in the domestic market. Jing Yuan, the founder, says orders are up as much as 30% year-on-year, but profits are down 50% due to increasing materials costs that are not easily passed onto clients.The company is under “huge cash pressure” as it needs to pay half a month in advance of delivery in order to secure copper and other metals, which they previously paid for months after receiving, he said. “The commodity issue has to be addressed by the government,” he added.What Bloomberg Economics Says...Chinese industry is absorbing significant cost pressures from rising commodity prices -- damping the inflationary impact for the rest of the world. Will it last? Our analysis of gross margins suggests it could for a while longer: downstream industries -- where the cost crunch is most severe -- still have a small cushion.David Qu, China economistFor the full report, click here.Input shortages mean some manufacturers aren’t able to make use of their existing facilities, so expansion would be of little use. Chinese electric vehicle maker Nio Inc. suspended production at one of its factories last month, due to a shortage of microchips.Modern Casting Ltd., which makes iron and steel products in Guangdong, issued a note to clients this month saying it would not be able to meet its current orders due to high raw material costs. A member of staff who answered the phone at the company’s office confirmed the note, but declined to give further details.Growth TransitionOn top of the higher input costs, Chinese companies face a bumpy transition toward domestic consumer spending to sustain its post-pandemic recovery.Exports, China’s strong-suit last year, may begin to slow as vaccine roll-outs cause consumers in wealthy countries to shift spending back to services. Meanwhile, the growth rate of Chinese consumer spending has yet to fully recover.Investment sentiment among Chinese small and medium-sized enterprises is below levels seen even in 2018-9 when uncertainties from the U.S.-China trade war were a brake on expansion plans, according to a regular survey of more than 500 Chinese companies by Standard Chartered Plc.“Demand is still mainly underpinned by exports, so domestic companies are aware that this is not sustainable,” said Standard Chartered’s China economist, Lan Shen.While some export-oriented sectors have been pushed to their limits, large amounts of slack remain for manufacturers targeting Chinese consumers due to subdued domestic demand.Retail sales growth was 4.3% in April on a two-year average basis, which strips out base effects from the pandemic, less than half pre-pandemic growth rates. Overall capacity use at China’s manufacturers fell to 77.6% in the first quarter from 78.4% in the previous three months, with the automotive sector hit hardest by overcapacity following three years of declining sales volumes.Even for electric vehicles whose sales are surging, most companies have already built their capacity and will now focus on incremental upgrades. “The majority of the investment has been done,” said Jochen Siebert of JSC Automotive Consulting.China ordered state-owned companies to expand last year, with their investment growth of 5.3% in 2020 from the prior year easily outstripping the 1% increase in private investment. But for a sustainable pick-up in investment, the market, not the state, needs to feel confident.Carsten Holz, an expert on Chinese investment statistics at the Hong Kong University of Science and Technology, estimates that privately-owned companies have accounted for 87% of manufacturing investment in 2015, the most recent year of available data. They are more sensitive to input costs.“There is a pandemic plus insecurity about future trade given a new U.S. administration, neither of which is conducive to investment that relies on long-term growth prospects,” Holz said.Mixed PoliciesTransport bottlenecks are also a challenge for export-oriented manufacturers. Gordon Gao, who exports gardening products from China, said that he has had to reject 80% of orders this year due to port delays. In one case, an order placed before mid-February could only be shipped three months later when a client finally secured a container.Beijing has tried to improve conditions for private companies by ordering a crackdown on speculation to curb commodity prices and easing access to bank loans.Yet the government continues to gradually withdraw fiscal and monetary stimulus measures introduced amid the pandemic last year. It set a relatively unambitious target of “above 6%” growth for this year, and the Communist Party’s Politburo signaled last month it would prioritize reforms to control house prices and debt growth.“The policy stance has definitely shifted away from supporting growth and back toward de-risking the financial sector,” said Adam Wolfe, an economist at London-based Absolute Strategy Research. “The risks for economic growth seem tilted to the downside, especially for capital-intensive, construction-linked sectors.”For manufacturers such as Li, a longer period of domestic growth and control over input prices will be needed before capacity expansion is on the cards. While his company of 200 workers took on new permanent staff before the pandemic, for now he’d rather pass the risks of investment on to others.“I wouldn’t do that now, I would rather hire some temporary workers and outsource the rest,” he said.More stories like this are available on bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

  • US STOCKS-Wall St rises as Fed officials soothe inflation worries

    Wall Street's main indexes rose marginally on Wednesday after remarks from the Federal Reserve helped ease worries about higher inflation, while a recent dip in bond yields supported heavyweight tech-related stocks for a third straight session. Apple Inc, Amazon.com Inc and Alphabet Inc added between 0.2% and 0.5%, as the yield on the benchmark 10-year Treasury note stood at more than two-week lows of 1.557%. Higher yields pressure valuations for tech and other growth stocks, whose future cash flows are discounted at higher rates.