Business Maverick

Thursday, November 7: Five Things You Need to Know to Start Your Day

By Bloomberg 7 November 2019
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(Photo: AdobeStock)

Delays ahead for the Trump-Xi partial trade deal, China is in talks for the Aramco IPO, and Taiwan stocks are on a tear. Here are some of the things people in markets are talking about today.

December Delay

The signing of the somewhat elusive partial trade deal between the U.S. and China just got more precarious. President Donald Trump and Chinese President Xi Jinping may not be able to officially ratify it until December, according to a person familiar with the matter. What’s more, two U.S. locations have been ruled out for their highly anticipated meeting, they said. The two sides have been trying to agree on a limited trade deal that would entail the U.S. dropping some tariffs on Chinese imports in exchange for Beijing resuming purchases of American farm goods and other products, as a means of resolving the trade war ahead of the 2020 U.S. elections. But the scheduled signing at an international summit in Chile this month was canceled because of unrelated protests in the capital, Santiago.

Markets Mixed

Asian stocks are poised to open mixed Thursday following reports of a potential delay to the signing of a partial U.S.-China trade deal. Treasuries rebounded after dropping for three days, while futures were lower on Japanese and Hong Kong equities and higher on Australian stocks. The S&P 500 Index closed little changed Wednesday. Shares in energy companies declined alongside West Texas crude, which slumped after a report that the biggest producers in OPEC+ aren’t pushing for deeper oil-supply cuts when the group meets next month. The yen rose, as did gold.

Chinese Whispers

Chinese state-owned entities are in talks about investing a combined $5 billion to $10 billion in Aramco’s hotly anticipated initial public offering, people with knowledge of the matter said. The Beijing-based Silk Road Fund is among parties in discussions to buy stock in the offering, according to the people. But the fund isn’t the only Chinese party interested: Some other Chinese funds or state-owned enterprises may also join, the people added. Xi has been seeking to increase China’s political clout and revive ancient trading routes under his “One Belt, One Road” initiative, and an investment in Aramco would cement ties with Saudi Arabia as well as provide China a way to profit from rising oil prices. For Aramco, large commitments from China would help it make the share sale a success, after Western money managers struggled earlier on the company’s valuation.

QE Ahead?

It was once an unthinkable occurrence in an economy buoyed by China’s growth, but the weakest economic growth since the global financial crisis is fueling speculation the Reserve Bank of Australia will in fact join its global peers and kick-start quantitative easing. Australia’s central bank governor Philip Lowe has repeatedly said he doesn’t anticipate extreme monetary policies, but elsewhere, no fewer than seven central banks around the world have employed QE programs over the past decade, according to the Bank of International Settlements. Given this has become a well-trodden path, here’s a list of some of the tell-tale portents that show up in rate markets ahead of unconventional easing.

Buy, Buy, Buy!

Taiwan stocks are on a tear, the local dollar is near the strongest since mid-2018 and government bonds keep fetching record-low yields at auction. Clearly, a surprisingly strong year for Taiwan is showing no signs of slowing. Foreign inflows into Taiwan have made the economy and asset prices there among Asia’s best performers, despite worries earlier in the year about the U.S.-China trade war. Meanwhile, the Taiex stock gauge is up 20%, set for its best year in a decade, and needs to rise 7% more to finally top 1990’s record high. It was a very different story back in 2018, when Taiwan saw unexpected stock weakness as the U.S launched its broadside against Chinese trade practices. But Taiwan’s economy looks to have instead been a net beneficiary — the biggest one, with almost $4.2 billion of additional exports shipped to the U.S. in the first half of 2019 because of tariffs against Chinese goods.

What We’ve Been Reading

This is what’s caught our eye over the past 24 hours.

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