February 20, 2018, by Tracy Alloway
As the dust settles on the selloff that roiled markets two weeks ago, analysts and investors are thinking about what comes next. Morgan Stanley reckons the slide in stocks was just a taste of the future. A former Tudor Investment Corp. trader who’s been betting on ructions in fixed income thinks just a small rise in inflation could upend bonds. With both equity and debt markets on potentially shaky ground, JP Morgan Asset Management is warning that diversified portfolios won’t save you. U.S. stock futures are slipping this morning, European shares pared earlier gains while most Asian equity benchmarks fell.
Back to bonds
A huge week of U.S. government bond issuance begins today, when the Treasury sells $151 billion of short-term notes and $28 billion of two-year debt. With fears over inflation and the American deficit, traders will be watching for any signs that the deluge of supply sparks another selloff in fixed income – one that potentially drags the dollar down with it. Meanwhile, Goldman Sachs Group Inc. is warning that U.S. fiscal policy is entering “uncharted territory,” as debt levels and interest expenses are set to soar.
The scandal involving Latvia’s central bank chief and European Central Bank Governing Council member is deepening as Ilmars Rimsevics now faces accusations of repeatedly trying to extort money from a local bank. Meanwhile, euro-area finance ministers agreed to nominate Spain’s Luis de Guindos to be the next ECB vice president, a move that will hand Madrid a top seat at the helm of the monetary authority for the first time since 2012. Adding to drama in the region, U.K. Prime Minister Theresa May’s team is said to be eyeing a contingency plan to hold back billions of pounds in Brexit payments if the EU declines to give the country the trade deal it wants.
Stuart Gulliver’s seven-year reign as HSBC Holdings Plc’s CEO ended with a rare failure to live up to analysts’ earnings estimates as lending margins narrowed and the bank booked loan charges related to two clients. Fourth-quarter pretax profit of $3.6 billion missed the lowest estimate among analysts, thanks to impairments on loans to two corporate borrowers said to be Steinhoff and Carillion. Meanwhile, Deutsche Bank AG is said to have started cutting at least 250 jobs at its corporate and investment bank.
It’s a busy week for governments and central banks, if not economic data. On Wednesday at 2:00 p.m. Eastern time, the Federal Reserve is scheduled to issue minutes from its Jan. 31 monetary policy meeting, the last led by then-chair Janet Yellen. On the same day, Bank of England Governor Mark Carney will unveil his latest inflation report at 9:15 a.m. in London, while South Africa’s finance minister will publish his budget – the first under President Cyril Ramaphosa.