By Geoffrey Smith
Investing.com – The global bond selloff resumed and the dollar rose again after a strong short-coverage rally in risky assets on Wednesday. Stocks should open under pressure, as a result. Nike and Micron will report earnings after the close, while Porsche rises to debut after evaluating its IPO at the top of its range. In the UK, sterling, bonds and equities fell again as Prime Minister Liz Truss doubled down on her policy of budget-blasting tax cuts, while in Germany inflation continued to roar as the early winter brought more alarming economic news. Here’s what you need to know about the financial markets on Thursday 29 September.
1. The bond market selloff resumes; GDP review, expiring unemployment claims
The selloff in global bond markets has resumed and a new wave of safe-haven demand lifted the dollar after the importance of Wednesday’s emergency intervention by the Bank of England in the UK was slowly taken into account.
Yields on the benchmark US Treasury bond rose again by 13 basis points to 3.84%, forgoing much of Wednesday’s short coverage rally. The yield on banknotes increased by 12 basis points to 4.22%. Meanwhile, it rose 0.6% to 113.62, still comfortably below the highs recorded earlier in the week.
The US market is to absorb the final data for the US for the second quarter at 08:30 ET (12:30 GMT) along with the more timely one, where no material changes are expected from last week. Federal Reserve speakers include James of St. Louis and Loretta of Cleveland.
Outside of the US, there are larger central bank rate hikes expected in and, while e is expected to stop.
2. UK assets drop again as Truss doubles up
UK assets began to decline again when Prime Minister Liz Truss doubled down on her policy of unfunded tax cuts in a series of unconvincing radio interviews.
His comments came the day after the Bank of England pledged to buy £ 65bn of UK government bonds in an effort to secure market liquidity after the sharp rise in yields of Gilts over the past week has triggered mass sales by pension funds to meet interest rate derivative margin calls. They were accompanied by sideline snipers from Mark Carney, the former BoE governor, who accused the government of undermining the Bank and the Office for Budget Responsibility with his plans.
The BoE’s bond purchase solves a short-term problem of market instability, but contrasts grossly with the rest of its monetary policy. In addition to increasing, it was planning to start selling its portfolio of government bonds on the market from October. By reversing its course, it makes its task of reducing inflation even more difficult.
3. Shares destined to open lower; Nike, bets on Micron’s profits
US equity markets are expected to open lower later, returning some of the gains made on Wednesday.
At 6:20 am ET, they were down 230 points, or 0.7%, while they were down 1.0% and 1.3%. The three major cash indices all rose around 2% on Wednesday amid a strong short-coverage rally.
Actions that are likely to be in focus later include Tyson’s food (NYSE 🙂 after news of a major management reorganization. CarMax (NYSE 🙂 reports earnings prior to opening, while Nike (NYSE 🙂 and Micron (NASDAQ 🙂 share the stage after closing.
4. German inflation continues to roar as the first blast of cold triggers the gas alert
Europe’s economic problems went from bad to worse. Four German research institutes have cut their growth forecasts for this year to 1.4%, from 2.7% six months ago, and now expect Europe’s largest economy to shrink by 0.4%. next year, instead of growing by more than 3%.
Things could be even worse: in a risk scenario of cold winter and gas shortage, the institutions are forecasting a contraction of the German GDP of 7.9% in 2023 and 4.2% in 2024. Unsurprisingly, the regulator of The country’s Bundesnetzagentur network has invited families to, after the Germans hit the thermostat in response to last week’s first cold spell.
Inflation in Germany continues to rise: data from its largest states was above expectations and set the stage for a headline figure of over 10% in September.
5. Porsche IPO offers a respite from obscurity
German sports car maker Porsche (F 🙂 grew by around 5% in initial negotiations in Frankfurt after reaching the top end of the marketing range, making it the largest share surge in Europe – and one of the largest in the world. world – so far this year.
The deal will raise € 19.5 billion ($ 19 billion) for the electrification of its parent group Volkswagen (ETR :), which will continue to hold a controlling stake. It values the group as a whole at € 78 billion, more than double its closest rival Ferrari (NYSE :).
This also creates an interesting arbitrage opportunity with Volkswagen as a whole, whose market value is only slightly above € 81.5 billion. This implies that the market essentially assigns no value to the rest of VW’s automotive manufacturing business as a whole.