Market Morning: China Chafes, Bonds on the Block, Aramco Back On, Sears On Its Deathbed

Market Morning

Price of Tea In China Falls 3%, or Rather Stocks

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What do equities have to do with the price of tea on China? Who knows, but Chinese stocks (NYSEARCA:FXI) are way down, over 3% as the new week starts off, and this despite the People’s Bank of China (PBOC) made a People’s decision to cut the People’s banks’ reserve requirements as of October 15th, effectively releasing 1.2 trillion yuan into the People’s economy. The People aren’t too happy about it though. Hong Kong’s Hang Sang index is slightly less moody today, down just over 1%, and Japan’s Nikkei is down 0.8%. While the S&P 500 and Dow futures aren’t doing too badly yet, Nasdaq futures (NASDAQ:QQQ) are already taking a beating in the wee hours of the morning, down over 90 points, or over 1.2%.

What About the Price of Bonds In the United States?

But Asian equities are not the crux of what’s going on this week. All eyes will be on the bond market, as last week was one of the worst performances for bond markets since the early 1990’s, and rates across the yield curve are still at or near historic lows. Last week ended with 10Y yields just under 3.24%. The next major resistance levels on the 10Y are at 3.666%, hit in 2011, 43 basis points from where we are now. We have already moved 43 basis points higher since August 20th, which means it is at least conceivable that support zones at 3.666% could be broken by the end of the year. Not too likely since we will probably have a relief rally after last week’s carnage, but if we don’t see a bounce in the next few days, things could start to get a bit wild in both the bond and global equity markets. Italian bond markets aren’t doing too well today either, with 10Y BTPs now past 3.5%.

Related Tickers: (NYSEARCA:TLT) (NASDAQ:BND)

ARAMCO IPO Back On? So Says Crown Prince

Mohamed bin Salman, Crown Prince of Arabia, is now insisting that that once doomed ARAMCO IPO may yet rise like a crude phoenix from whatever is left over when you burn crude oil. His Royal Highness says that the new date is 2021, and he’s sticking to his $2 trillion valuation. If this is true, then most likely the delay was just a price issue, and the Saudis want oil to be in the triple digits to ensure a $2 trillion valuation before they submit the largest oil company in the world to public scrutiny. Bin Salman also said that the Kingdom is doing what it can to compensate for lost crude supplies out of Iran, its arch enemy, where full sanctions will go into effect in about 3 weeks’ time.

Inflation Number Out This Week, Upside Surprise Could Exacerbate Bond Selloff

Watch the inflation numbers out this week. The producer price index (PPI) is out on Wednesday, the consumer price index (CPI) Thursday, and 5Y inflation expectations out of the University of Michigan is out on Friday. There is no expectation for upside surprises and the numbers should broadly follow the personal consumption expenditure (PCE) trends released at the end of September, but any surprises to the upside could anger the bond market, already under significant pressure since last week.

Goodbye Sears, World’s First Giant Retailer Will Soon Be No More, Says Analyst

Sears (NASDAQ:SHLD) is now a penny stock, both in market cap and in value per share, trading under $1.00, now at just $0.63. 11 more stores are being shuttered, and more layoffs are scheduled for the heart of the holiday season. Speculation is that the closures could include one of the defunct chain’s most profitable stores, which would put the last nail in the coffin for a company that has its roots in the 19th century. Why close a profitable store? Because Sears has too much debt that they cannot service, and they need to liquidate assets in a last gasp effort to survive.


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