While the biggest micro news of the weekend is certainly the report that Hewlett-Packard has finally thrown in the towel on organic growth (all those thousands laid off over the past ten years can finally breathe easily – they were not fired in vain), and has proceeded to do what so many said was its only real option: splitting into two separate companies, a personal-computer and printer business, and corporate hardware and services operations (which will certainly lead to even more stock buybacks only not at one but two companies) which in turn has sent its stock and futures higher, perhaps the most notable development in the macro world is Japan’s realization finally that the weaker Yen is crushing domestic businesses, which has resulted in the USDJPY sliding to lows last seen at Friday’s jobs report print, and also generally leading to across the board weakness for the dollar, whose relentless surge in the past 3 months is strongly reminiscent of the euphoria following the Plaza Accord, only in the other direction (and making some wonder if the Plaza Hotel caterer are about to see a rerun of September 22, 1985 in the coming weeks).
Some of the key overnight headlines:
- ABE: ENERGY PRICE RISES FROM WEAK YEN IMPACT CONSUMERS, SMES: BBG
- ABE: WILL TAKE MEASURES ON WEAK YEN, WATCH EFFECTS: BBG
Not helping Yen weakness is the WSJ report, previously noted here, that the “GPIF Unlikely To Announce New Portfolio Until November”, a delay which could rattle investors hoping fund will invest more in stocks… and pushing the USDJPY lower. Of course, all of this is connected to what we said last night would likely be the admission by the Japanese government that the country has once again entered a recession.
Aside from that, in primary presidential polling in Brazil, Aecio Neves has finished second, surprising many and entering the run-off against Dilma Rousseff in late October. Many analysts see Brazilian assets benefitting today, with UBS and Nomura arguing that this increases the chances that Rousseff will not be re-elected. Of course, Brazil may simply be doing what the “developed” nations do so well, and rig election polls and outcomes, merely to obtain the desired short-term market outcome; we will know for certain in a few weeks.
It has been a mixed start to Asian markets overnight amid a holiday-thinned session. Singapore and Australia are out on holiday and China will not officially return from its National Day Golden Week until Wednesday. The Nikkei and the Hang Seng are up +1.2% and +1.1%, respectively as we type. Bourses in Taiwan and Korea are off to a softer start to the week. The situation in HK has eased overnight as protestors allowed government workers to access the government complex which had been blocked since last Friday. Major thoroughfares are still closed on Monday but schools that were shut have reopened and the numbers of protestors have dwindled allowing some form of normalcy to return after over a week of protests. Meanwhile China’s state-run media has ruled out any possibility of Beijing changing its mind on HK’s political reforms.
Less than 20 protesters in front of the Chief Executive office in Admiralty, about 1/10 of the number yesterday. pic.twitter.com/e28Ct7943s
— Alan Wong (@byAlanWong) October 6, 2014
Staying in Asia, the World Bank has reduced its GDP growth estimates for China in 2014 to 7.4% from a previous forecast of 7.6%. Looking into 2015, the World Bank now sees growth at 7.2% from a previous forecast of 7.5%, mainly as the government seeks to put the economy on a more sustainable path with policies addressing financial vulnerabilities and structural constraints. However, except for China the World Bank is rather constructive on the rest of the region. The institution sees growth for developing East Asian countries (ex China) to bottom out at 4.8% this year before rising to 5.3% next year as exports rise and domestic economic reforms advance in the large Southeast Asian economies. Staying on EM but on the other side of the globe we saw the completion of the first-round vote of the presidential election in Brazil on Sunday.
European stock futures trade higher, with the DAX outperforming as it catches up on global equity strength on Friday, as German stocks were closed for Reunification Day. Germany’s progress has been slightly impaired by weakness in Siemens shares, who remain the only German stock in the red after warning their energy unit margins would be lower than expected in the future due to pricing pressure in wind turbines.
The usual post-payrolls lull in the economic data calendar this week will be populated by an eventful week of high level meetings around the globe. The IMF and World Bank annual meeting in Washington starts this Friday although there are plenty of events/speeches ahead of the official proceedings. Furthermore, we also have a few central bank rate meetings and a senior leadership summit between China and Germany. If that wasn’t enough company analysts will also be sharpening their pencils as we kick off the Q3 earnings season with Alcoa’s results this Wednesday.
