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Business Maverick

December 9: Five things to know to start the day

Demonstrators march during a protest in Causeway Bay district of Hong Kong, China, on Sunday, Dec. 8, 2019. Hundreds of thousands of people marched through Hong Kong to mark Human Rights Day and press for greater democracy in the city. Photographer: Kyle Lam/Bloomberg

Hong Kong sees its biggest pro-democracy rally in months, analysts are issuing warnings over central bank efficacy as we head into the next decade, and China’s latest export numbers have given the country one more reason to be anxious about securing a trade deal with the U.S. Here are some of the things people in markets are talking about today.

Far From Over

Hong Kong saw its biggest pro-democracy protest in months on Sunday, signaling more unrest to come in 2020 as the movement that began in June to fight China’s increasing grip on the city shows its staying power. Hundreds of thousands of demonstrators flooded the city’s major downtown boulevards, many waving U.S. flags, singing “Glory to Hong Kong” and chanting “Five demands, not one less.” The protests were largely peaceful throughout the afternoon, though at night tensions emerged between riot police and some radical demonstrators. Some protesters also called for disrupting the commute on Monday morning. The rally was the first organized by the Civil Human Rights Front to get police approval since August, prompting many Hongkongers who normally wouldn’t risk joining an illegal assembly to hit the streets. The show of force follows a landslide victory for pro-democracy forces in local elections last month.

Export Drop

An unexpected drop in China’s exports in November highlights just one reason why Beijing wants to agree on a phase one trade deal — U.S. tariffs are hurting exports when global demand is already weak. Total exports in November dropped 1.1% from a year ago, while to the U.S. they were down 23%, China’s customs administration said Sunday — the 12th straight monthly decline. Overall shipments had been expected to rise 0.8%, as retailers and companies stock up for Christmas. About 18 months of tit-for-tat tariffs have damaged both economies, with Chinese companies and American farmers selling less to the other side. Even if some of the tariffs are removed, both sides will be economically worse off than they would have been without the conflict.

Markets Lift

Asian stocks were poised to kick off the week with  gains after U.S. equities rallied Friday on better-than-expected jobs data. Currencies were steady early Monday. Futures in Japan, Australia and Hong Kong pointed higher. Gains may be kept in check as the Dec. 15 U.S.-China tariff deadline looms with both sides yet to agree to a trade deal and after that unexpected drop in Chinese exports for November. On Friday, the S&P 500 Index rose for a third day after reports showed payrolls jumped the most since January, wages beat estimates and consumer sentiment increased. Treasury yields climbed above 1.80%. Elsewhere, oil climbed after Saudi Arabia surprised the market by promising significant additional production cuts beyond what was agreed with fellow OPEC+ members.

Risk of Failure

The era of central bank shock and awe is over. More than ten years of crisis fighting — including this year’s rush to support global growth — have left policy makers in key economies facing a new decade with few good options to fight the next downturn. Interest rates are either already around historic lows or negative after more than 750 cuts since 2008, spurring concerns they are doing more harm than good. At the same time, leading central banks are buying bonds again — so called quantitative easing — after the purchase of more than $12 trillion of financial assets wasn’t enough to revive inflation. With the Federal Reserve, European Central Bank and Bank of Japan set to hold their final policy meetings of the year (and decade) over the coming two weeks, the worry is the next ten years could be their most testing yet. The mounting fear is that the lackluster expansions and inflation which have plagued Japan since the early 1990s will now be witnessed globally. Bank of America Corp. analysts have warned investors to be alert to “quantitative failure or monetary policy impotence.”

The Usual Suspects

The September repo blowup was fueled by big banks and hedge funds, according to a new analysis from the Bank for International Settlements. They also said that the mayhem suggests there’s a structural problem in this vital corner of finance and the incident wasn’t just a temporary hiccup. This market, which relies heavily on just four big U.S. banks for funding, was upended in part because those firms now hold more of their liquid assets in Treasuries relative to what they park at the Federal Reserve, officials at the Basel-based institution concluded in the report. That meant “their ability to supply funding at short notice in repo markets was diminished”, while hedge funds are financing more investments through repo, which “appears to have compounded the strains.” On Sept. 17, rates on general collateral repo briefly surged to 10% from around 2%.

What We’ve Been Reading

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

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