ASX to edge up as Evergrande’s fate and US debt talks top agenda

No local data; August retail sales will be released on Tuesday.

Overseas data: Euro zone August money supply; US durable goods orders August and Dallas Fed manufacturing index September.

Market highlights

ASX futures up 2 points to 7304

AUD -0.5% to 72.62 US cents
Bitcoin on bitstamp.net $US as of .. am AEST
On Wall St: Dow +0.1% S&P 500 +0.2% Nasdaq -0.03%
In New York: BHP -0.9% Rio -0.4% Atlassian +1.1%
Tesla +2.8% Apple +0.1% Facebook +2% Alphabet +0.6%
In Europe: Stoxx 50 -0.9% FTSE -0.4% CAC -1% DAX -0.7%
Spot gold +0.4% to $US1750.42/oz in New York
Brent crude +1.1% to $US78.09 a barrel
US oil +0.9% to $US73.98 a barrel
Iron ore +2.4% to $US111.33 a tonne
2-year yield: US 0.27% Australia 0.01%
5-year yield: US 0.95% Australia 0.72%
10-year yield: US 1.45% Australia 1.40% Germany -0.23%

From today’s Financial Review

Port strikes threaten to cripple Christmas: Wharfies are set to strike almost every second day for the whole of October at one of Melbourne’s major terminals, threatening months of delays.

Cormann leads push for global carbon price: The OECD secretary-general has confounded his climate critics with a bid to replicate the body’s successful global tax reform process.

Why Australia will bear the brunt of China’s property blues: Australia’s economic fortunes are highly leveraged to China’s old economy – and that’s why we’re already feeling the chill winds from Evergrande’s woes, writes Karen Maley.

United States

For the week, the Dow was up 0.6 per cent, the S&P 500 gained 0.5 per cent and the Nasdaq was near flat.

Investors made some major repositioning moves over the last week, according to Bank of America, including a $US28.6 billion outflow from US equities, the largest such move since February 2018.

In his weekly note, Goldman Sachs’ David Kostin wrote the S&P 500 trailing 4-quarter return on equity (ROE) jumped year over year by 479 bp to 19.6 per cent and now ranks in the 98th percentile since 1975.

“EBIT margin expansion was the key contributor as ROE improved in 8 of 11 sectors, with Consumer Discretionary, Info Tech, and Financials posting the strongest gains,” Kostin notes. “The 2022 outlook for ROE is more challenging as margins stabilise and corporate taxes rise.”

Nike’s shares fell 6.3 per cent and were the biggest drag on the Dow and the S&P 500 on Friday after it delivered a downbeat sales forecast and warned of delays during the holiday shopping season, blaming a supply chain crunch.

Intel has broken ground on two new factories in Arizona as part of its turnaround plan to become a major manufacturer of chips for outside customers. The $US20 billion plants – dubbed Fab 52 and Fab 62 – will bring the total number of Intel factories at its campus in Chandler, Arizona, to six.

Carnival said cruise bookings for the second half of 2022 were ahead of pre-pandemic levels, in a sign the cruise operator expects a rebound in business as it restarts voyages globally.

Google chief executive Sundar Pichai in 2019 was warned that describing the company’s Incognito browsing mode as “private” was problematic, yet it stayed the course because he did not want the feature “under the spotlight”, according to a new court filing.

Clearwater Analytics Holdings was valued at about $US5.5 billion after a blockbuster stock market debut on Friday, in which its shares jumped over 30 per cent, capping a successful week for initial public offerings of tech unicorns.

Europe

European stocks fell on Friday as worries about China Evergrande and weak German business confidence data prompted selling.

European sportswear makers Adidas, Puma and JD Sports fell about 3 per cent each after Nike cut its fiscal 2022 sales expectations and predicted delays during the holiday shopping season due to a supply chain crunch.

Retail stocks were the top decliners in Europe, down 1.7 per cent, while the region-wide STOXX 600 fell 0.9 per cent. But a three-day rally put the index 0.3 per cent higher for the week.

A survey by Ifo Institute showed German business morale in September fell for a third straight month, hit by supply chain woes that are causing a “bottleneck recession” for manufacturers in Europe’s largest economy.

Germany’s DAX fell 0.7 per cent, heading into the weekend when the country will vote to elect German Chancellor Angela Merkel’s successor.

Bank of America sees some clouds ahead: ” Euro area surveys are deteriorating, with softening demand part of the story. Gas prices grind higher, squeezing purchasing power of consumers.

“We update our headline inflation forecast to 2.4 per cent in 2021, 2.2 per cent in 2022 and 1.6 per cent in 2023 (from 2.2 per cent, 1.7 per cent and 1.3 per cent before), while core remains broadly unchanged.”

Asia

Bank of America’ view on China’s challenges: “We suggest investors follow developments in China along two dimensions. First, and most obvious, how soon and how aggressive is the response to the property sector crisis? Within this, who ends up getting protected? Specifically, does China take another step away from global markets in the way it handles dollar-denominated debt?

“Second, watch for signs of how the trade-off between the quantity and quality of growth is playing out.”

China’s antitrust regulator is unlikely to approve Baidu’s $US3.6 billion acquisition of JOYY’s video-based domestic live streaming business YY Live, two sources with direct knowledge of the matter told Reuters.

At the close of trade in Hong Kong on Friday, the Hang Seng index was down 318.82 points, or 1.3 per cent, at 24,192.16. The Hang Seng China Enterprises index fell 1.5 per cent to 8604.99.

The energy sub-index dipped 1.7 per cent, the IT sector dipped 1.1 per cent, the financial sector ended 0.9 per cent lower and the property sector slumped 2.3 per cent.

Property sector shares were hit after a bond interest payment deadline for heavily indebted developer China Evergrande Group expired on Thursday, with bondholders reporting they had not been paid.

China Evergrande’s shares tanked 11.6 per cent, making it the biggest percentage decliner among H-shares. China Evergrande New Energy Vehicle Group dived 23.4 per cent and Evergrande Property Services Group fell 4.4 per cent.

China’s main Shanghai Composite index closed down 0.8 per cent at 3613.07. The blue-chip CSI300 index fell 0.1 per cent, with the materials sector down 4 per cent, the financial sector 0.9 per cent lower and real estate firms down 0.8 per cent.

The People’s Bank of China has injected a net 460 billion yuan ($US71 billion) of short-term cash into the banking system the past five working days, including 70 billion yuan on Friday.

Currencies

China declares all cryptocurrency illegal: China has banned all transactions in currencies such as bitcoin, saying they are illicit and cannot be circulated.

Oanda’s Edward Moya on crypto risks: ”Beijing withheld banning possession of cryptocurrencies, which would have dealt a massive blow to the entire crypto space. A banning of possession of cryptos probably would have sent everything crypto 20 per cent lower.

‘If you are a Chinese crypto holder, you might be deciding now is the time to cash out. Three years ago, crypto was heavily centralised in China, with over two-thirds of the mining happening there. If Chinese crypto holders fear a ‘possession ban’ is looming, a tremendous amount of selling from old wallets may occur.

“Bitcoin remains extremely vulnerable on the break of the $38,000 level,” Moya said, “which could trigger momentum selling to the $35,000 level.”

At the top of FX markets this week is the key annual ECB meeting, which will be virtual this year. Here’s what TD Securities is expecting: “The ECB meets virtually for its annual Sintra conference.

“The agenda includes Lagarde, Powell, Bailey and Kuroda, but perhaps more telling will be comments on the (virtual) sidelines by Governing Council members seeking to shift the debate into year-end as the ECB prepares a top-down review of its policy packages at its December meeting. Inflation worries are already building.”

Commodities

S&P Global Platts said seaborne iron ore prices rose further on Friday as some market participants continued to identify buying opportunities at current price levels.

At portside, active restock from the mills continued and the price
levels rose further on the day as stocks of more liquid medium-grade
fines such as PBF and Newman Fines were heard tighter, Platts also said. At Shandong Ports, stocks of Newman Fines were much tighter than that of PBF, widening the price spread between the two brands to Yuan 40/wmt,
according to sources.

Australian sharemarket

ASX ends lower despite mid-week rally: The Australian sharemarket finished a volatile week of trading 0.8 per cent lower at 7342.6 after falling 27.6 per cent points on Friday.