House prices rose 0.6% in China last month, the 51st consecutive month of gains, according to Reuters calculations based on national bureau of statistics (NBS) data released today.
The gains are good news for the Chinese economy after some terrible data yesterday which showed industrial production falling to a 17-year low.
Despite all the gloom, the markets are beginning to recover some ground. The Nikkei is now off just 1.3% compared with 2% earlier, and the Hang Seng is in the red by just 0.45% after hitting -1.4% earlier. Shanghai is still on -1%.
In line with that improvement the FTSE100 and the Dow Jones are both seen opening in the black later today, according to IG Markets futures trading.
Australia is looking more off colour, however, with the ASX200 in Sydney slipping -2.28% to 6,445 points. It wasn’t long ago that it reached an all-time high of 6,875 points.
Australia at risk from global turmoil, bank deputy says
Guy Debelle, the deputy governor of the Reserve Bank of Australia, has given a speech this morning about what the global turmoil means for Australia and, not surprisingly, it’s not good news.
Speaking at a risk conference in Sydney, he said Australia – which has not had a recession for 28 years – benefited greatly from the “rules-based global order”. But the threats to that from the US-China trade war were bad news for the economy.
There were risks for household consumption but signs that house price falls were levelling out provided more optimism.
If this is the case, the drag from declining wealth and turnover will dissipate. Housing market conditions may even start to support consumption growth again in the period ahead.
US 30-year bond yields sink below 2% for first time
It’s all happening now!
The yield on 30-year US treasury bonds has slumped below 2% for the first time this morning. The 30-year yield extended its sharp overnight slide and hit a record low 1.991% in Asian trade on Thursday.
Concerns about the global economy is driving investors into the relative safe haven of government bonds. That drives up the price of bonds but reduces the yield.
Shanghai Composite down 1.3%
Trading has started in mainland China as well and the Shanghai Composite is off 1.1%, easing earlier losses.
It follows the decision by the People’s Bank of China to set the yuan slightly higher this morning. It also announced that it was lending 400bn yuan ($56.90bn) to financial institutions via its one-year medium-term lending facility, with an unchanged interest rate at 3.3%. It rolls over a bunch of loans worth 383bn yuan and adds more cash, Reuters reports.
The bank also injected a net 30bn yuan into money markets on Thursday.
Australian unemployment stays at 5.2%, Aussie dollar spikes
Unemployment stayed at 5.2% in July, according to seasonally adjusted figures from the Australian Bureau of Statistics released a few minutes ago. But the market was cheered by stats that showed 41,000 jobs were created last month against a forecast of 14,000.
The Aussie dollar picked up 0.4% to US67.75c.
Hong Kong opens down 1.4%
The Hang Seng index has opened down 1.4% this morning. That’s a fall of 365 points today and it takes the index below 25,000 to 24,945.
The Hang Seng been battered by concerns about the growing political crisis in the city – the deepening fears about a slowdown in the Chinese economy won’t help.
Help is at hand though. Donald Trump is offering a trade deal to Xi Jinping if he can sort the mess in Hong Kong “humanely”.
China sets yuan slightly higher
China’s central bank has set the yuan higher this morning at 7.0268 against the US dollar, compared with 7.0312 the day before.
In other words, Beijing is willing to see the yuan strengthen a little. (The lower the number, the stronger it is against the greenback). In the grand scheme of things that will be seen as a small olive branch to Washington, which last week accused Beijing of wanting to manipulate the yuan downwards and force cheaper goods on the world.
The losses seem to be easing in Japan, where the Nikkei is now down 1.76% for the day. But Australia’s ASX200 is now off a hefty 2.1%, not helped by a bad result for the telco Telstra.
It has reported a 40% fall in profits this morning thanks to the mounting cost of rolling out the country’s national broadband network, or NBN. Its shares are down nearly 2% and, as one of the biggest companies on the market, that makes a difference.
Oil continues to fall
The cocktail of economic news and data has been bad for the price of oil. Brent crude is down 39 cents, or 0.7%, at $59.09 a barrel this morning, after falling 3% in the last session.
US crude was down 28 cents, or 0.5%, at $54.95 a barrel, having dropped 3.3% in the previous session.
The falls have increased expectations that Saudi Arabi and other Opec oil-producing nations will cut production to force prices back up. That’s bad for their national coffers though and the Saudis, who are fighting a war in Yemen, have been reluctant to cut.
Michael McCarthy, chief market strategist at CMC Markets in Sydney, notes that although the bond market was the trigger for the trauma on stock markets in the past 24 hours, not every inversion in the US curve has led to a recession. But he says that might not be enough to prevent a rush for the exits amid a delicate geopolitical position:
Markets were in no mood for subtlety, and the damaging moves may provide their own rationale for more selling. The sell-off comes despite a better than forecast US earnings season. More than 90% of SPX500 companies have reported. Aggregate earnings are up around 2%, beating forecasts of a negative quarter.
He also said poor earnings result in Australia, especially from the telco giant Telstra, would keep the pressure on stocks down under:
Australian company results could add to market pressures. Telstra reported a 40% drop in profit, worse than forecast. Optimistic messages around the introduction of the 5G spectrum may not be enough to stem investor displeasure. Other misses include Blackmore’s, Cleanaway, Treasury Wine Estates and Super Retail. Both Sydney Airports and QBE Insurance delivered earnings above expectations, and funeral group Invocare surprised with a 7.5% lift.
So what is an inverted bond yield curve?
A major factor in yesterday’s selloff was the inverted US bond yield curve – not helped by recession warnings from Germany and China. It is a very reliable predictor of recession and preceded all six of the previous US recessions.
It’s not often it becomes a topic for everyday conversation. So in case you get stuck next to the water cooler and feel like making some small talk, here’s a quick explainer.
In normal times, investors would expect a higher return, or yield, for buying longer-term government bonds. Conversely, the shorter-term bonds, such as two-year bonds, give you less return.
But as you can see in the theoretical chart below, the normal curve turns the other way, or inverts, when the yield on longer-term notes falls in relation to shorter-term. It indicates that investors see trouble ahead …
It looks more like this in the real world:
You can go for the PhD level with this column from our economics editor, Larry Elliott:
In Japan the Nikkei index is down 2.1% this morning. Stocks are suffering amid the fears of a global downturn but are also being pushed down because the value of the yen is rising. The Japanese currency is a “safe haven” asset and goes up in times of crisis – rather like gold and the Swiss franc which are both also up today.
A higher yen is bad news for Japan’s export-reliant big manugfacturers, hence the falling stock market.
Here’s Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo:
When volatility rises, dollar/yen becomes strongly correlated with [US] treasury yields, so the currency pair has more room to fall. I expect other safe havens to rise. The mood is downbeat, because of the trade war and bad economic data.
‘Turbulence will continue,’ Australian stock market boss says
Market turbulence will continue over coming months, the chief executive of the Australian Stock Exchange says.
As the benchmark ASX200 took a 2% hit in early trading this morning, the ASX chief executive, Dominic Stevens, said the 2020 financial year would see “elevated volatility” because of the geopolitical situation and the changing expectations for interest rates.
My colleague Ben Butler writes that with rates at record lows the market expects further cuts in coming months as the Reserve Bank tries to boost Australia’s sluggish economic growth.
But while markets around the world may be melting down, it’s been a good year for the ASX. It said this morning that profits after tax had risen 10.5% in the year to 30 June, to $492m. Shareholders in the market operator will reap the benefits, trousering dividends for the year totalling 228.7c a share – up 5.7% on last year’s payout – plus a special dividend of 129.1c a share from the sale of ASX’s stake in technology company Iress.
Australia opens down 1.8%, Japan off 1.9%
Trading has started in Asia with steep falls – as expected – in Australia and Japan.
Good morning/evening … wherever you are in the world, welcome to the Guardian’s business live blog which is starting early today before what’s expected to be a turbulent day on the financial markets.
My colleague Graeme Wearden covered all the action in the UK, Europe and the US on Wednesday and you can catch up on his blog here.
But in the meantime here are the main points:
- Wall Street suffered huge losses after an inversion in the US bond yield curve sparked fears of an imminent recession.
- The Dow Jones plunged 800 points, or 3%, its fourth largest decline in history. The S&P500 and Nasdaq were also down heavily.
- Fears were compounded by GDP figures in Germany pointing to a recession there and data in China showing industrial production was down 17% in July.
- The numbers sent European markets down, with the FTSE100 off more than 100 points.
- Oil slumped on fears of a global downturn.
- Donald Trump lashed out at the Fed chairman, Jerome Powell, calling him “clueless”.
Here’s our news wrap of yesterday – and I’ll have today’s opening scores in a few minutes when trading starts in Sydney.
Read more from source here…