5 things to start your day
Wall Street awaits Trump speech,
Hong Kong on brink of “total breakdown,”
…..and a bonus warning for bankers.
Trade update?
Markets, as ever, are hungry for good news on trade with stocks dropping yesterday as concerns rose that the U.S. and China are struggling to get an initial deal done. This means investors will be very closely watching President Donald Trump’s speech to the New York Economic Club later today in which he may address the U.S-China relationship. One place where there could be some good news is a likely decision by the administration to delay the imposition of tariffs on European automobiles after manufacturers from the region engaged in an intensive lobbying effort in Washington in which they highlighted plans to switch production to American suppliers.
Worsening situation
There were more protests in Hong Kong today, with a police spokesperson telling reporters that the city is being pushed to “the brink of a total breakdown.” Tear gas was again fired in the financial district as demonstrators blocked roads and clashed with the police. The protests are now in their 23rd week, with no end in sight. For investors in the city’s equity market, swings in valuations are becoming more extreme with stocks rising overnight following Monday’s plunge.
Bonus hit
There’s bad news for Wall Street bankers hoping a strong third-quarter performance will boost their year-end bonus. Compensation consultant Johnson Associates Inc. said in a report that equity traders could see a drop of as much as 15%, with bonuses for underwriting and fixed-income trading also expected to fall. Only those in investment banking advisory roles and private equity may seen an increase in compensation. The report also warned of continued layoffs in the industry next year.
Markets quiet
With investors waiting for the next trade headline, equity markets have been relatively subdued so far today. Overnight the MSCI Asia Pacific Index added 0.4% while Japan’s Topix index closed 0.3% higher. In Europe, the Stoxx 600 Index was 0.2% higher at 5:50 a.m. Eastern Time with the telecom sector getting a boost from a buyback at a French carrier. S&P 500 futures pointed to a small gain at the open, the 10-year Treasury yield was at 1.935% and gold slipped further.
Coming up…
While Trump’s lunchtime speech to the Economic Club of New York is the main event today, there are some other verbal interventions that may be worth watching. Philadelphia Fed President Patrick Harker and Minneapolis Fed President Neel Kashkari both speak later. CBS Corp, DR Horton Inc. and Overstock.com Inc. report results as earnings season slowly winds to a close.
What we’ve been reading
This is what’s caught our eye over the last 24 hours.
- World’s rich readying for major stock sell-off, UBS says.
- Tesla’s Model 3 success hits BMW the hardest.
- China is turning into one of Germany Inc.’s biggest headaches.
- States step up Google scrutiny over antitrust issues.
- Top gold ETF has the biggest outflow in three years.
- Winter is coming (early).
- Discovering extraterrestrial life would be slow and uncertain.
And finally, here’s what Joe’s interested in this morning
The idea of killing two birds with one stone is inherently attractive. You see it a lot in economic policy. For example, it’s pretty common to hear people propose infrastructure spending in a downturn, both as a means of pumping money into the economy and making needed investments. More recently people have been talking about «Green QE,» or having the central bank stimulate the economy while also providing financing to climate initiatives by buying green bonds. Elizabeth Warren’s proposed wealth tax to pay for Medicare-For-All is another one: Curb inequality while financing health coverage for everyone. All of these ideas are seductive on the surface, but start to break down when you take them to their logical consequences. Bundesbank chief Jens Weidmann recently gave a speech arguing that central banks should not be in the business of fighting climate change by financing green bonds. His argument is that QE only makes sense when pricing pressure is weak, and that it doesn’t make sense to start and stop climate endeavors based on trends in inflation. As such, it makes more sense for democratically-elected makers of fiscal policy to decide on initiatives to subsidize climate investments. The «wealth tax to pay for healthcare» runs into similar issues. Either it makes sense to curb the wealth of billionaires or it doesn’t. But if the premise of «paying for» healthcare is that you need the money of the ultra-rich, then that runs counter to a goal of grinding down their wealth. Even infrastructure stimulus (probably the least controversial of the ideas above) is problematic. As Pavlina Tcherneva of Bard College writes, «We either need to replace the Tappan Zee bridge or not.» Tying needed infrastructure work to an economic downturn is unnecessary or dangerous. It won’t make you sound clever, but maybe we should try killing birds one at a time: specific policies to address climate change, maintain infrastructure, curb inequality, provide healthcare, and so on, without the need for a clash or awkward timing.