Japan Markets Fall as Rates Rise, Fundamental and Corporate News
Stock and fundamental news
• The Nikkei outshines all, falling 4.6% as markets price in the risk of higher interest rates under new Prime Minister Shigeru Ishiba. He has long been critical of the BOJ’s ultra-loose stance, leading investors to assume he will not stand in the way of policy normalisation. However, the actual management could change attitudes, and he struck a much more conciliatory tone over the weekend, saying accommodative policy was necessary given the state of the economy. Markets still show almost no chance of the BOJ tightening in October, but have 6 basis points of a hike in December, so the chance of a quarter-point rise is around 24%. On the other hand, the market is only forecasting the current rate of 0.25% reaching 0.5% by the end of next year, so it’s not exactly a hawkish outlook.
Ishiba's comments helped the dollar stabilize at 142.64 yen after falling 1.8% on Friday to 142.07. The euro strengthened slightly to $1.1170, having been boosted last week by a favorable U.S. core PCE price index.
• US data has led markets to price the chance of another major Federal Reserve rate cut on November 7 at 52%, although the presidential election could clearly be a factor in that.
• A Donald Trump victory would be seen as a risk of higher inflation and a stronger dollar, given his stated preference for sweeping tariffs. PredictIt shows Kamala Harris ahead 57 cents to 48, but that's hardly a convincing margin.
• This week, a number of Fed officials, led by Chairman Jerome Powell, will have a chance to weigh in on Monday afternoon, while Friday's August payrolls report will be crucial in deciding how deep the next cut will be.
• While the Nikkei fell, Chinese shares extended their run, rising 5% after the country’s central bank said it would cut mortgage rates. The property sector received a boost after tier-one cities such as Guangzhou lifted all home-buying restrictions over the weekend, while Shanghai and Shenzhen announced plans to ease purchase curbs. The stimulus measures helped offset a drop in the Caixin/S&P Global manufacturing PMI to 49.3 in September and a slowdown in the services PMI to 50.3.
• Tesla management in Germany is conducting 'home checks' on workers who go on sick leave - The Guardian
Employees are outraged that people are literally coming to their homes to check if they are sick. The company says it is normal practice to "address colleagues with work ethic".
• Many brokerages in China now offer 24/7 services to meet demand as new individual investors rush to open trading accounts after China's stock market surged 16% last week - Bloomberg
• Shanghai bourse scrambles to fix glitch The Shanghai Stock Exchange conducted stress tests over the weekend and traders braced for a potentially volatile session on Monday after transaction problems late last week left a number of quant hedge funds in jeopardy.
• BofA recommends selling gold versus silver. Speculators' bullish positioning in silver is less extreme and its momentum is stronger.
• Bloomberg: U.S. stocks have endured their traditionally toughest period of the year, and investors expect the rally to continue in October despite a contentious presidential election campaign, a shift in Fed policy and fears of a future recession.
• Japanese stocks to fall on rate hike fears after Ishiba win - Bloomberg Japanese stocks are likely to fall on Monday after Shigeru Ishiba's surprise victory in the ruling party leadership race raised expectations for higher interest rates.
• September jobs report to give new clues on how quickly the U.S. labor market is cooling The
U.S. economy is expected to add 130,000 nonfarm payrolls, with the unemployment rate holding steady at 4.2% - Bloomberg. Also on the calendar are job openings, activity in the services and manufacturing sectors, and consumer confidence.
• Trump is going to sue Google because it only shows bad things about him in its search results. “Google has illegally used a system to show only bad stories about Donald Trump, some of which were made up specifically for this purpose, while only showing good stories about Kamala Harris,” Trump wrote on his social network Truth Social.
• Robinhood and Revolut Consider Launching Their Own Stablecoins - Bloomberg. It is noted that both companies are betting that USDT issuer Tether will weaken its position due to stricter regulation in Europe and other countries.
Binance founder released from custody in the US
• On Friday, September 27, Binance cryptocurrency exchange founder Changpeng Zhao was released from a California correctional facility after being held for shortcomings that allowed cybercriminals and terrorist groups to trade freely on the world's largest cryptocurrency exchange.
• China's economy continues to cool.
China Non-Manufacturing PMI (services sector) unexpectedly fell from 50.3 to 50.0 (expected 50.4).
China Manufacturing PMI (industry) rose from 49.1 to 49.8 (expected 49.4), but still remains below the growth zone (50 points).
Key events that could impact markets on Monday:
- German CPI and retail sales, French CPI. EU consumer and business sentiment.
- ECB President Christine Lagarde's opening statement at the ECON hearing. Bank of England Governor Megan Green joins the panel.
- Federal Reserve Chair Jerome Powell speaks on the economic outlook. Federal Reserve Chair Michelle Bowman speaks.
- Chicago PMI, Dallas Fed.
• JPMorgan Chase CEO Jamie Dimon called for less focus on economic news,
particularly lower interest rates, and more concern about global threats from a so-called “axis of evil” that could affect the democratic world for the next 100 years.
Speaking at the Financial Markets Quality Conference in Washington on September 17, 2024, he highlighted the war in Ukraine, conflicts in the Middle East, tense U.S. relations with China, and threats to the rule of law as critical issues.
• Chancellor candidate Friedrich Merz has called for “valuing financial success more”. “I would like to change our mentality a little,” the conservative CDU politician told Bild am Sonntag. “Economic success is part of success, you don’t have to brag about it, but you can show it. That way you can inspire others.”
The CDU leader expressed concern about Germans’ attitudes toward work. According to Merz, if it is perceived only as an “unpleasant interruption of leisure”, this will lead to a “massive loss of well-being”.
• The right-wing Austrian Freedom Party, which opposes anti-Russian sanctions, wins the parliamentary elections with 29.5%. This follows from exit poll data.
• Shanghai eases home-buying rules as China expands support. China's financial hub Shanghai has relaxed rules for home buyers, becoming the first major city to implement the central government's latest aid program for the struggling property sector.
• The French government is considering new taxes on large firms, Le Monde writes. They want to tax corporations more in order to reduce the country's budget deficit.
• US Vice President Kamala Harris is leading former President Donald Trump by a narrow margin in six key states. In Georgia, both candidates have equal support, according to a Bloomberg News/Morning Consult poll. In reality, neither Democrats nor Republicans can be confident of victory in the US.
• The United States and allies are ending the global coalition's military mission in Iraq - AP, with U.S. troops leaving some bases they have occupied during their two-decade military presence in the country.
• Estonia, Lithuania and Latvia are asking the EU for money to strengthen their borders with Russia and Belarus. The Baltic countries intend to ask the European Union for financial support for the construction of bunkers, fences and military warehouses on the borders with Russia and Belarus as part of the Baltic Line of Defense project.
• Moody's downgrades Israel's rating again as economic costs of war mount. It's the second time Israel's rating has been downgraded this year.