Daily Agenda: Chinese Data Points to Further Slowdown

Greek Prime Minister resigns to clear the way for an election; Apple floats massive bond offering in Australia.


Xaume Olleros

The release of preliminary Caixin/Markit China manufacturing purchasing managers’ index (PMI) brought more unwelcome news in China today. The measure registered at 47.1, the fastest rate in more than six years on weakening demand at home and abroad. Critically, the employment subindex declined along with nearly all other segments. The Shanghai Composite index closed today’s session with a decline of 4.2 percent, bringing the loss for the week to nearly 12 percent for the large-cap benchmark. Yesterday’s global swoon for equity markets was a sign that despite rising hopes that the Federal Reserve will abstain from a rate hike next month, U.S. market sentiment is not immune to declining confidence in emerging markets. The CBOE Volatility index, a measure of volatility implied by the cost of options on the S&P 500, rocketed more than 25 percent to close yesterday at 19.14 — an indication that many investors fear that the largely placid U.S. market conditions of summer are coming to an end.

Greek prime minister steps down, election announced. Greek Prime Minister Alexis Tsipras announced his resignation yesterday, paving the way for a national election September 20. In response, a group of 25 members of parliament split from Tsipras’ Syriza coalition to form a new leftist party to challenge the incumbent majority.

ABN AMRO earnings rise sharply. Amsterdam–headquartered financial institution ABN AMRO Group released second-quarter earnings today, posting net earnings of $677 million for the period, nearly twice the level recorded a year earlier. The bank, which has been state-owned since 2010, will begin to return to private shareholders with an initial public offering that will float as much as 30 percent of the firm.

Data points from Europe show promise. Final Markit PMI levels for the primary euro zone economies brought some welcome surprises today, with composite levels for both Germany and the common currency area as a whole improving beyond consensus forecasts. French composite PMI fell slightly, though remained well within positive territory. German GfK consumer confidence index levels for September registered lower than forecast at 9.9, a further decline from June’s reading, which was the highest in more than a decade.

Apple sets borrowing record Down Under. Apple completed a sale of $1.6 billion in corporate debt issued in Australia, the largest-ever nonfinancial sector corporate bond offering in the country. The technology titan has bolstered itself against recent currency market volatility by diversifying the currencies under which it borrows through a series of international offerings over recent months.

Portfolio Perspective: Bond Markets in Europe and U.S. Fluctuate

“Despite European credit being partially insulated from the commodity sell-off, in the near term spread direction will likely be dictated by developments in that space along with the ongoing weakness in US credit markets. As we have argued previously, European credit is unlikely to rally unless we see an improvement of sentiment in the U.S.”

— Søren Willemann, Barclays

“For now, as long as equities remain weak, longer-dated U.S. Treasuries will remain better bid. There are a variety of other supportive factors that will limit any sell-offs in Treasuries but weakness in the risk asset markets is what is giving the upward boost to bonds right now.”

— Karl Haeling, Landesbank Baden-Württemberg