Market Questions is the FT’s guide to the week ahead
Robin Wigglesworth
Jay Powell, the Federal Reserve chairman, has given strong indications of an imminent rate cut
Will the Fed’s beige book data ease growth concerns?
A new batch of data from the US Federal Reserve on Wednesday will offer investors a clearer picture of economic growth after a volatile August and rising tensions between Washington and Beijing over trade.
The Fed will release its monthly “beige book” of data on the domestic economy from across the central bank’s 12 districts on Wednesday. Poor data will indicate that a string of evidence pointing to a weakening global outlook has reached the US, the world’s biggest economy.
Last month, the beige book showed modest economic growth, easing concerns that companies were cutting spending. Recent indications are less positive. Last week, preliminary August data showed the IHS Markit manufacturing purchasing managers’ index falling below the neutral 50 points mark to 49.9, the first contraction since September 2009 and below economists’ forecasts.
The long stand-off between the US and China has also cast a shadow over growth. Earlier this month president Donald Trump increased the levies on previously announced tariffs on Chinese goods and warned US companies to find alternatives to China.“
I don’t foresee a recession on the horizon, but there are scenarios where the economic picture could deteriorate more quickly,” said Steve Chiavarone, a portfolio manager with Federated Investors in New York. “It’s hard for us to predict …because we don’t know what 2020 corporate earnings will look like and there is a ton of uncertainty over trade.”
Richard Henderson
Will US bond supply rev up again after Labour Day?
US Labour Day, the first Monday of September, typically signals the end of the summer doldrums for America’s capital markets, with companies readying sales of stock and bonds in what is usually the busiest month of the year. This one could be even more hectic than usual.
Investment-grade debt issuance totalled just $84bn in August, and together with a sluggish July it was the slowest summer for bond sales since 2014, according to Bank of America. But Yunyi Zhang, a BofA analyst, predicts that issuance will jump back to the five-year average of about $130bn in September.
This amount of supply could lead to some market indigestion, but there is ravenous appetite for high-grade corporate debt at the moment, given the swelling mountain of negative-yielding bonds.
Investment-grade bonds had their best August since 1982, according to Bloomberg data, as fund managers loaded up on higher-quality debt that could offer significantly higher returns than the US government. That suggests that corporate treasurers are likely to find plenty of willing investors in September.
Mr Zhang predicts that supply could hit as much as $45bn this week “as the pace typically accelerates right out of the gates after Labour Day, especially after some of the August pipeline was delayed due to recent market volatility.”
Robin Wigglesworth
Can Hong Kong stocks avoid another nosedive?
It is already the only developed market bourse in the red this year, and Hong Kong’s stock market could be headed for further falls. A key reading on economic activity in the Chinese territory is set for release on Wednesday, and investors will be watching closely for ill-effects from the long protests against an extradition law with China that have rocked the city this summer.
The last reading for IHS Markit’s Hong Kong purchasing managers’ index, which tracks all private sector business activity in the financial hub, came in at 43.8 for July, far below the 50-point level separating contraction and expansion and marking the sharpest fall in a decade. Bernard Aw, economist at Markit, said business demand had been hit by a one-two punch of protests and the US-China trade war.
But the benchmark Hang Seng index did not begin diverging from other global stock benchmarks until August, as violence escalated and as Carrie Lam, the territory’s leader, refused to meet any of the protestors’ key demands. Indeed, instead of steadying markets, Ms Lam’s press conferences have tended to correlate with sharpening falls on the Hang Seng, which finished the month more than 7 per cent lower.
The index pared some of its losses last week before levelling off, but could take another hit if the PMI is weak. Yet business activity in Hong Kong was falling long before large-scale protests kicked off in June – it has been shrinking since April 2018. Ms Lam, who has pledged to lead a recovery for the territory that would reassure investors, may have her work cut out to achieve it.
Hudson Lockett
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