Business Maverick

Tuesday, September 3: Five Things You Need to Know to Start Your Day

By Bloomberg 3 September 2019
Caption
US President Donald Trump and Chinese President Xi Jinping. (Photos: EPA-EFE / Shawn Thew / EPA-EFE / Mark Schiefelbein / Pool)

Mistrust is growing between Washington and Beijing, Hong Kong stocks are looking good to Chinese investors, and the U.K. may be heading for a snap election. Here are some of the things people in markets are talking about today.

Suspicious Minds

Chinese and U.S. officials are struggling to agree — again — on the date for a planned meeting this month to continue trade talks after Washington went ahead with tariffs on Sunday, even after Beijing’s request to delay them, according to people familiar with the discussions. The world’s two biggest economic powers have yet to see eye to eye on basic terms of re-engagement, with mistrust on both sides. Chinese state media called out the U.S. administration’s behavior as “China-bashing,” and the Ministry of Commerce in Beijing has plans to bring the spat before the World Trade Organization. Meanwhile, Trump is asserting that talks will go ahead for September, but that isn’t doing much to soothe markets – the S&P 500 Index dropped 1.8% last month and U.S. Treasury yields have plunged amid the swirling uncertainty hurting companies, at home and abroad.

Looking Good

Hong Kong authorities have warned that radical protesters showed “signs of terror,” more than 1,000 people have been arrested, Reuters reports that Carrie Lam would “quit” if she could, and some of the most violent confrontations have occurred since unrest first broke out three months ago… But Chinese investors are still pouring money into Hong Kong stocks. Mainland investors bought shares in the city for a 32nd session Monday, pouring a net HK$72 billion ($9.2 billion) across the border in that period, the longest buying streak since December 2017. What gives? Chinese traders have been lured by the cheap valuations, and have largely ignored the worst deterioration in corporate net income in three years — the Hang Seng Index slipped 0.4% Monday, taking its drop from an April high to 15%. The gauge has given up all its gains for the year and is the worst-performing major index globally in the past month.

Markets to Slip

Asian stocks are set to follow U.S. futures lower as Chinese and American officials struggle to schedule a planned meeting this month to continue trade talks — futures slipped in Tokyo, Sydney and Hong Kong. Cash markets for both U.S. stocks and bonds were closed for the Labor Day holiday, but 10-year Treasury futures erased a decline while the dollar strengthened for the sixth consecutive day to its highest in more than two years. The pound slumped to a two-year low with the U.K. facing a showdown in Parliament over delaying Brexit (again). Elsewhere, crude oil slipped below $55 a barrel amid concerns a hurricane battering the U.S. east coast and an economic slowdown from the trade war may dent demand.

Record Cash Pile

In banks across Japan sits a pile of money that’s bigger than most countries’ gross domestic product — the cash reserves of the nation’s companies. Firms listed in Japan held 506.4 trillion yen ($4.8 trillion) in cash as of their latest filings, the highest level on record. Many are divided on whether it’s testament to their strength, or simply a wasted opportunity — companies see the money as a buffer against hard times, but it has long riled investors, who say executives should invest it for growth or return it to shareholders. Despite his best efforts, Prime Minister Shinzo Abe is struggling to contain the problem, levels have more than tripled since March 2013, months after he returned to power vowing to stamp out cash-hoarding.

Election Threat

Boris Johnson is planning for a snap general election on Oct. 14 if he loses a crucial vote over a no-deal Brexit in Parliament this week, a senior U.K. official said. Under new legislation introduced by a cross-party alliance of MPs (including Tory rebels), the PM would have to either get new deal through the House of Commons by Oct. 19, or persuade lawmakers to back a no-deal exit. If Johnson can’t achieve either outcome — Brexit would be delayed again to Jan. 31. under the new game rules designed to significantly impede the chances of a no-deal divorce. Despite the signs of trouble, the prime minister said he will not delay leaving the European Union under any circumstances, and that he wants to avoid an election. The pound fell by as much as 0.98%.

What We’ve Been Reading

This is what’s caught our eye over the weekend.

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