Trade of the Day: Asian stocks decline but European bonds higher on phase one deal report; US futures and oil post gains; Treasuries, gold dumped.
Quote of the Day: “Stocks are expected to outperform bonds handily in 2020 as the global economy bottoms out in the first quarter, while monetary policy remains accommodative. The conventional idea of allocating 60% to equities and 40% to bonds is unlikely to survive into the 2020s,” said BofA Merrill Lynch Global Research in its 2020 outlook on Wednesday.
Stock of the day: Peking University Founder Group offshore bonds extended their slide, falling 23-48% for different maturities after the group defaulted on Monday on a domestic bond, triggering a cross-default clause. The bonds fell by varying degrees because of the difference in the individual bond structure, which influences the strength of investor claims. The 4.7% bonds due 2021 fell the most, sliding 48% to 31 cents on the dollar. This reflects the expectation the bond holder would get only 31% of his principal back on maturity date.
Number of the Day:. 2.5% the amount of fiscal spending as a proportion of GDP that the Hong Kong government should make over the next two years to alleviate the impact from the cyclical downturn.
Tip of the Day: “Chinese government bonds warrant particular consideration, as they offer both yield and diversification benefits, and their addition to the EM bond benchmark in 2020 is likely to result in substantial flows,” said State Street Advisors in their Global Market Outlook for 2020.
Asian markets fell on Wednesday after China lashed out at a US House of Representatives bill targeting camps confining Muslims in Xinjiang. The Uighur Human Rights Policy Act of 2019 requires the United States to harden its response to China’s crackdown on Uighur Muslims. The bill names a member of China’s powerful politburo, Xinjiang Communist Party Secretary Chen Quanguo, and calls upon US President Donald Trump to impose sanctions on him. This further jeopardizes prospects of a trade agreement ahead of the December 15 deadline when 15% tariffs on about $160 billion worth of Chinese exports to the US are scheduled to go into effect. The US has placed tariffs on more than $350 billion of Chinese goods during the more than 17-month long trade war.
Investors had already been jittery about a trade deal after Trump said an agreement would have to wait until after the 2020 US elections. The MSCI Asia-Pacific index ex-Japan fell 0.9% while Japan’s Nikkei fell 1.05%. Hong Kong’s Hang Seng benchmark retreated 1.25% with insurance, property and industrials providing most of the drag.
China’s response to the US legislation was prompt. In a statement the Ministry of Foreign Affairs said: “We urge the US to correct its mistakes at once, prevent this bill from becoming law, and stop using Xinjiang-related issues to interfere in China’s internal affairs. China will take further reactions according to how the situation develops.”
But a Bloomberg report said that US negotiators expect a phase-one deal with China to be completed before tariffs are set to rise on Dec. 15, despite tensions over Hong Kong and Xinjiang. This has pushed up S&P 500 futures by 0.4%, indicating a higher open at Wall Street when trading begins. European stocks are also higher with the FTSE up 0.3% and the Stoxx Europe 600 1% higher.