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Asian Stocks Shed Gains On US Debt Ceiling Uncertainty

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Asian stocks gave up morning gains on Tuesday after creeping to two-week highs, as investors stayed cautious amid the standoff over the U.S. debt ceiling, while awaiting industrial sector surveys in Europe and the United States. FTSE futures were largely flat while E-mini futures for the S&P 500 index rose 0.14%. MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.03% by 0535 GMT, after touching its highest since May 9 a few hours earlier. Japan’s Nikkei also dropped sharply from a 33-year peak, down 0.52%, as some investors swooped in to take profit following a breathless eight-day rally. (T) “(Asia ex-Japan) momentum seems still being relatively modest,” said Redmond Wong, Hong Kong-based market strategist with Saxo Markets. Investors’ key focus will be on U.S. personal consumption expenditures data and the minutes of the Federal Open Market Committee meeting, followed by initial jobless claims, Wong said. “These three together will potentially give investors some new information about what the Fed will do in the June meeting.” President Joe Biden and House Speaker Kevin McCarthy could not reach agreement Monday on how to raise the U.S. government’s $31.4 trillion debt ceiling with just 10 days before a possible default but vowed to keep talking. A positive outcome of the talks could prompt a risk-on trade environment, potentially leading to a decline in gold and a surge in equities, said Anderson Alves, a trader with Antitrades. Stronger-than-expected readings of upcoming U.S. data could spur further increases in U.S. short-term rate expectations ahead of the Federal Reserve’s June meeting, Alves said. Minneapolis Federal Reserve President Neel Kashkari said overnight that it was a “close call” as to whether he would vote to hike again or pause at next month’s meeting. St. Louis Fed President James Bullard said another 50 basis points of hikes might be required. “The resumption of debt ceiling negotiations spurred some hopes, despite distinct risks of brinkmanship and blame-shifting remaining on the cards,” said Mizuho economist Vishnu Verathon. “Without real action on that front, hawkish Fed speak has (had) some sway on markets,” he said, adding that some pressure on U.S. Treasuries has also lent support to the dollar. Ten-year and two-year U.S. yields are near highs not seen since March, as traders start pushing back expectations for U.S. rate cuts from July towards November or December. Benchmark 10-year Treasury yields rose for a seventh straight session on the remarks to hit 3.728% overnight, and held steady near that level in Asia. Two-year yields were last at 3.875%. The U.S. dollar tracked the move and hit a six-month high of 138.88 yen in the Asia session. Firm against most other currencies, the dollar traded at $1.0800 per euro and $0.6645 per Australian dollar. Japan’s manufacturing activity expanded for the first time in seven months in May, survey data showed on Tuesday, while the service sector hit record growth, as recovery after COVID-19 gains traction. Purchasing Managers Index surveys are due in Europe, Britain and the United States later in the day and strong services growth is expected to hold the composite readings in expansionary territory. Oil prices kept climbing. Benchmark Brent crude futures rose 0.24% to $76.17 a barrel by 0535 GMT, while U.S. West Texas Intermediate crude was at $72.29 a barrel, up 0.32%.

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China’s JD.com To Open Grocery Stores By Merging 7Fresh, Other Units

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Chinese e-commerce giant JD (NASDAQ: JD).com plans to open retail grocery stores through the merger of its 7Fresh supermarket unit with other business lines such as its group-buying arm Pippin, a company spokesperson said on Monday. Beyond opening actual stores, the new division will explore innovative retail models, the spokesperson told Reuters, confirming reports in local media. Yan Xiaoping, who was previously responsible for the online e-commerce platform’s international division, will take charge of the business and report to Xu Ran, CEO of JD.com, the spokesperson added. This latest development comes after JD.com laid out an ambitious 20-year blueprint earlier this month to build seven enterprises that will be valued at more than 100 billion yuan ($13.83 billion) each.
The company faces an increasingly competitive landscape, with Chinese consumers able to choose from a growing range of platforms including JD’s main rival Alibaba (NYSE: BABA) Group, PDD Holdings’ Pinduoduo (NASDAQ: PDD) and Byte Dance’s Doujin, the Chinese equivalent of Tikor. JD.com created 7Fresh in 2017 after Alibaba introduced Freshippo, a premium physical grocery store. Alibaba said last month that it plans to kick off an IPO process for Freshippo soon as part of the company’s restructuring. In 2017, JD spun off its logistics unit into a standalone unit. It also plans to spin off its property and industrial units and list them on the Hong Kong stock exchange in deals worth $1 billion each, Reuters reported in March.

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Explainer-What is Hong Kong’s New Dual HKD/RMB Share Counter?

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The Hong Kong stock exchange will start offering yuan-denominated Chinese stocks from Monday in what it calls a dual counter, a scheme that is seen as part of China’s efforts to increase the yuan’s use overseas. The exchange will initially target the offerings at investors holding offshore yuan. Ultimately, the Hong Kong Exchanges & Clearing (HKEX) aims to enable mainland investors to trade yuan stocks listed in Hong Kong using their onshore yuan. Here’s a look at how the yuan-denominated stock trading works, and the CNH’s role. HOW DOES THE DUAL STOCKS COUNTER WORK? The HKEX’s Dual Counter Model allows investors in Hong Kong to trade stocks concurrently in both Hong Kong dollar and the yuan. A total of 24 companies will start offering yuan counters at the scheme’s launch. The HKEX has said all shares of the same securities in the two trading counters will be fully interchangeable between counters. They will be designated as the HKD-RMB Dual Counter Securities. The yuan counter will be listed separately under a different, 5-digit stock code that begins with “8”; while the Hong Kong dollar counter will follow a 5-digit number starting with a “0” The HKEX is also rolling out a market-maker program so that any price differences between the two counters because of the yuan’s moves can be reduced. IS IT THE FIRST TIME THAT YUAN-DENOMINATED STOCKS WILL BE TRADED ON THE HKEX? No. There was a dual-currency trading precedent, when Hopewell Highway Infrastructure offered such an option of yuan shares in 2012 to investors, long after its Hong Kong shares first debuted in 2003. But the yuan counter failed to gain traction due to the significant price gap between the two trading counters. WHICH INVESTORS WILL TRADE ON THE DUAL COUNTER? The first batch of investors could be holders of offshore yuan deposits in Hong Kong, which totaled 833 billion yuan ($117 billion) at the end of April, as they look for potentially higher returns in the stock market. Yuan holders in China’s trading partner countries, such as Russia, Pakistan and the Middle East, could also be potential investors. The HKEX is working with Chinese regulators to allow mainland investors to eventually participate via the Stock Connect investment channel that connects the Hong Kong, Shanghai, and Shenzhen stock exchanges. Mainland investors currently trading Hong Kong stocks through the southbound leg of the Stock Connect face an exchange rate risk, to hedge which they have to pay a 2% margin to their brokers when they submit their trade orders. Also, investors are told the exact yuan amount they have to pay or receive only at the end of each trade day. The yuan counter will mean investors will be paying the yuan price for stocks quoted in real time during trading hours. TELL ME MORE ABOUT THE OFFSHORE YUAN, OR CNH
CNH stands for offshore yuan, launched in 2003 as an experiment in creating a distinct, offshore market for yuan.
The onshore yuan is only partially convertible as China’s capital account remains largely closed. Schemes such as the Stock Connect and CNH are part of China’s efforts to gradually open up its capital market to foreigners.
The onshore yuan is largely fungible with CNH and, under normal market conditions, their exchange rates tend to move together. The onshore yuan is more managed by authorities, with the spot rate allowed to trade within a 2% range around the official daily fixing set by China’s central bank. The CNH is driven mainly by demand and supply.

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Goldman’s Cost-Cutting Accelerates As Lean Times Persist

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Goldman Sachs Group Inc (NYSE:GS)’s managing directors were invited to meetings this month to receive an ominous message: take even more painful steps to cut costs, according to four sources familiar with the situation. Belt-tightening on the agenda for meetings of Goldman’s top executives is another sign that the firm’s ongoing push to cut $1 billion in costs is now accelerating as managers target smaller and smaller line items and contemplate more job cuts, sources said. Previously, employees were able to spend on subscriptions for websites that provide data and information. They could book a business trip to see one client and expense pricey meals. Now senior managers are needed to sign off on expenditures and travel requires seeing multiple clients, the sources said. If revenues don’t bounce back alongside the aggressive cost-cutting measures, more employees can expect to be laid off this year, one of the sources said. The bank has let go of 3,700 employees since September. Managing directors will also be given goals for budget reductions and be held responsible for delivering them, one of the sources said. “We have repeatedly emphasized our focus on expense management in this environment, and are delivering on the $1 billion plan we laid out at investor day to drive efficiencies and deliver for shareholders,” a Goldman Sachs spokesperson said in a statement. The latest round of penny-pinching comes as Goldman Sachs management grew more pessimistic about an economic recovery and dollmaking this year. Investment banking revenue for the industry is so far down nearly 46% in the second quarter from same quarter a year earlier, preliminary data from Dialogic shows for the period April 1 to June 6. Goldman Sachs investment banking revenue is down 52% in that same period, the Dealogic data showed. Goldman declined to comment on the data. Goldman’s trading revenue, which recorded its second-best year in 2022 at $25.67 billion due to market volatility, is also shrinking. But it is the firm’s ill-fated foray into retail banking that has captivated the industry because it is a rare, and public, flop for the bank. When Silicon Valley and Signature banks failed in March, Goldman staff joked that the turmoil was a blessing in disguise for CEO David Solomon because it drew attention away from the company’s travails, three sources familiar with the situation said. Now, the bank is preparing to lay off just under 250 people, including partners and managing directors in its most senior ranks. The cuts have already begun, two sources familiar with the matter told Reuters. Since the dismissals affect fewer than 250 employees globally, Goldman Sachs does not have to issue an advance notice to employees of layoff plans under U.S. law, one of the sources said. Goldman Sachs said in February it aims to reduce payroll expenses by $600 million, a figure that President John Waldron said earlier in June it could exceed by the end of the year. Goldman is not alone in curbing costs. Morgan Stanley (NYSE:MS) is cutting 3,000 staff this quarter, Lazard (NYSE:LAZ) Ltd plans to reduce 10% of its workforce and Citigroup Inc (NYSE:C) also intends to pare down. But Goldman’s January layoffs were its biggest since 2008, and it is seen as a bellwether for Wall Street’s fortunes because it often occupies top rankings in banking and trading. The bank’s financial woes have put a dent in its valuation. Goldman Sachs trades at 0.97 times its book value, lagging rivals Morgan Stanley and JPMorgan Chase & Co (NYSE:JPM) which trade at 1.45 times and 1.33 times, respectively, according to Refintiv data. Investors are assessing whether Goldman’s strategy — to expand asset management alongside its traditional mainstay of trading — will bear fruit. “Goldman does have a very cyclical business,” said UBS analyst Brennan Hawken. “There’s no denying the headwinds they’re facing. It’s a clear realization that this is not temporary.” The headcount reductions and cost cutting do not solve Goldman’s fundamental challenges: its reliance on investment banking and trading. That compares with Morgan Stanley, where profits from wealth management have provided a cushion against weakness in dollmaking. “It feels pretty difficult out there right now, and challenging,” Waldron told investors at a conference on June 1. “We’re more cautious. We’re running the firm tighter.”

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