Futures fell this morning along with European stocks as investors scaled down their optimism after markets surged yesterday. A weaker job openings data report out of the U.S. and lower rate hikes from the Reserve Bank of Australia had many considering if other central banks will slow the pace of interest rate hikes. Market participants were hoping the recent reports were a sign markets have finally priced in a bottom and that central banks will become more dovish, but it is clear investors will need more evidence that inflation is moderating.
Job openings in the U.S. plummeted in August to its lowest level in over a year. Job Openings and Labor Turnover Survey (or JOLTS) showed yesterday that number of available positions decreased to about 10.1 million in August, a 1.1 million decline from July and lower than estimates. The steep drop is a welcome sign for Fed officials as they seek to cool demand for workers without triggering a spike in unemployment. The decline in vacancies was the biggest since April 2020 and is consistent with moderating labour demand and a darkening economic outlook. Data released this morning also showed that U.S. companies hired at a solid pace in September, suggesting demand for workers remains healthy despite rising economic uncertainty. Businesses’ payrolls rose 208,000 last month, complicating efforts by the Fed to cool inflation without triggering a jump in unemployment.
Some countries in Africa are losing an important lender amid mounting global challenges and rising rates. After being Africa’s largest bilateral creditor for years, allowing them to borrow at cheaper rates than they could find in capital markets, China has begun scaling back lending. The decision to scale back comes as China faces growth challenges of their own. Rising interest rates globally and shrinking liquidity have sent yields on African dollar debt to levels not seen since the global financial crisis, with average yields on sub-Saharan debt jumping more than 100 bps last week to trade at about 14.3%.
As financing costs rise, investors are seeing more cracks in debt markets and vulnerabilities among weaker borrowers. A government or corporation looking to issue new notes now would likely have to pay 156 bps more, which adds up to about $1.01 trillion in additional costs if all those securities were refinanced. As recession odds rise, rolling over debt is proving increasingly tricky for weaker borrowers as creditors become more cautious. While most governments and companies are still able to stomach the higher financing bills, credit markets are under pressure as fund outflows and volatility soar. Banks last week had to pull a $4 billion leveraged buyout financing, and even investment-grade debt funds saw one of its biggest cash withdrawals.
Canadians were able to build up excess savings through the pandemic with rising home prices, government relief programs, and money saved from not travelling. However, as inflation and interest rates have increased, sending markets and asset prices down, savings have been depleted. According to Stats Canada, the average household net worth dropped 6.5% or $65,400. Sadly, wealth inequality as increased with lower-income families and younger Canadians enduring the brunt of it. The decline in wealth for the least wealthy was largely driven by higher-than-average increases in debt, while younger households were more affected by declining real estate values.
There's never just one cockroach in the kitchen. After insisting he had only cheated a couple of times during chess matches, an investigation by chess.com revealed grandmaster, Hans Niemann, likely cheated in over 100 online games. A 72-page report revealed Niemann had admitted to cheating and was barred from the online platform. While Nieman had been one of the fastest rising stars in chess, the report described his results as "statistically extraordinary" and made mention of "many remarkable signals and unusual patterns in Hans' path as a player". Now if someone could email us the cheat code for this market, we'll gladly keep your identity secret.
Second time is a charm. Twitter’s share price popped higher on news that Elon Musk proposed to go ahead with the deal to purchase the social media platform at the original deal price of $54.20 per share. Twitter stopped short of declaring victory or dropping its lawsuit, set to go to trial in two weeks to force Musk to go through with the transaction. This is not a done deal. While Musk has secured the financing for the deal, he has not earned any trust with Twitter, go figure, the company should probably get the money before closing up its legal shop. But you know who is happy.... billionaire Carl Icahn who continued to bet on the outcome of the deal through months of uncertainty. Icahn capitalized on the dispute and acquired about a $500 million stake in the mid-$30-a-share range.
Brookfield Asset Management is in advanced talks to acquire Hong Kong-based clothing label maker Trimco Group from buyout firm Affinity Equity Partners. The transaction could value Trimco at as much as $1 billion. Brookfield has been sounding out potential banks financing for the deal, and an agreement could be reached in the next few weeks. Founded in 1978, Trimco makes clothing labels, radio frequency identification tags, packaging and trimming products and store decorations for some of the biggest apparel retailers.
Dye & Durham made a fresh proposal to acquire multiple parts of Sydney-based Australia’s Link Administration Holdings valued at A$1.27 billion. The deal includes the corporate markets business and its offshore banking and credit management business in cash, which are provisional on further exclusive talks. Link is Australia’s biggest service provider to the nation’s pension-fund industry.
Oil continues to chug higher with OPEC+ considering its biggest production cut since 2020. OPEC+ is set to meet this morning and discuss a cut to its output limits of as much as 2 million bpd, using current targets as a starting point. While a significant reduction, the actual impact on global supply would be smaller because several countries are already pumping below their quotas. Washington is trying to head off with furious diplomatic efforts and U.S. officials are making calls to counterparts in the Gulf trying to push back against the move. Also pushing up the price of oil, demand in China may pick up in the months ahead after Beijing released trade allowances enabling its vast refining industry to ship in more crude and export more fuel. Chinese crude demand has been hobbled this year as growth slows amid rolling Covid-19 lockdowns.
Still backed up. Dozens of ships carrying Ukrainian grain are piling up to clear inspection in Istanbul, highlighting the limits of the country’s crop-export revival. Over the summer, Ukraine has been shipping crops at a rapid clip to resume its seaborne trade, which had been stalled by Russia’s invasion. About 6 million tons have departed its Black Sea ports, with cargoes bound for Europe, Asia and Africa. The logjam is in focus, with Ukraine’s crop-export deal more than halfway through its initial 120-day run. Farmers and traders are keen to clear as much grain as possible before its expiry in mid-November, while officials hold talks over an extension of the agreement.
Fixed income and economics
It only took two days but markets are realizing that North American central banks are not pivoting anytime soon. Bond yields are rising both in Canada and the U.S. with markets realizing that neither is Australia and that monetary policy will continue to tighten. And that’ll happen as long as the economic data remains strong. Case in point, this morning we saw the ADP Employment Survey post a +208K gain to the U.S. private sector last month that bested the +200K estimate and better than the +185K print in August. The job market may be showing moderation in some pockets of America but by and large, the underlying data is showing that the stickiest roles (in the trade, transportation and utilities sectors) continue to add employees. Applications for jobless assistance and overall job openings remain tight, fueling the impetus for the Fed to hike rates further. The ISM Services Index out later today is expected to weaken but still signal moderate growth in September’s reading which should further add to Treasury weakness.
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