This content is from: Portfolio

Daily Agenda: Markets Brace for Fed Tightening

Greek stock market reopens after five weeks; legendary private equity dealmaker Jerome Kohlberg Jr. dies at age of 90.

Although last week’s U.S. macroeconomic releases featured disappointments for real estate markets, wages and sentiment among shoppers and a modestly upbeat GDP release for the second quarter are keeping bond markets positioned for Federal Reserve tightening by the end of the year, if not within the next few weeks. David Rosenberg, chief market strategist at Toronto wealth management firm Gluskin Sheff + Associates, wrote on Friday, “We all know that policymakers want to move off zero but have pledged to be data dependent.” Despite stubbornly low inflation likely to be exacerbated by still-declining commodity markets, the July employment situation report from the Department of Labor, due this Friday, will be the critical factor for investors factoring in long-anticipated rate normalization.

Canadian GDP data disappoints as election season kicks into full swing. Headline GDP figures released by Statistics Canada registered a contraction for the fifth consecutive month. While the collapse in oil and metals prices globally have had an anticipated negative impact, an ancillary impact on the industrial sector has weighed heavily on overall growth in the nation. Yesterday Prime Minister Stephen Harper dissolved Canada’s parliament, clearing the way for an extended national election campaign season ahead of the October 19 general election.

Chinese PMI adds to commodity price slump. The final Caixin/Markit manufacturing purchasing managers’ index (PMI) released today registered at 47.8 for July, the lowest level in two years and below consensus forecasts. A reading in the index below 50 represents a contraction in activity. Official manufacturing PMI levels released over the weekend by the National Bureau of Statistics also feel short of expectations but at 50, did not turn negative. Commodity markets reacted to the news in trading today with front-month Brent crude oil futures contracts down by more than two percent in London trading. Spot aluminum prices on the London Metals Exchange reached new multiyear lows.

Coal mining firm files for Chapter 11. Alpha Natural Resources Inc. became the first major U.S. coal industry casualty after filing for bankruptcy protection on Monday under a debt load exceeding $3 billion. The Virginia–headquartered firm acquired Massey Energy in an acquisition valued at over $7 billion in 2011 prior to the sharp decline in energy commodity markets globally.

Market sell-off in Greece, China. The Athens Stock Exchange index fell by 23 percent upon opening for the first time in five weeks, with some financial-sector stocks dropping more than 30 percent. The sell-off was largely anticipated as pent up selling pressure was finally released. Another volatile trading session in China finished with the benchmark Shanghai Composite index down by 1.1 percent after trading off by more than 3 percent earlier in the day.

HSBC reports boost in earnings, provisions for settlements. In a report released today, HSBC revealed a 10 percent year-over-year surge in earnings for the first half of 2015 with pretax profits approaching $14 billion. The lender, which is mulling a move in headquarters from London to Hong Kong, is placing $1.3 billion aside for settlements with regulators over currency manipulation charges.

KKR founder Kohlberg dies. Over the weekend the family of Jerome Kohlberg Jr. confirmed that he had succumbed to cancer at the age of 90. Kohlberg had built a legendary career as a deal maker at Bear Stearns during the 1950s, ‘60s and 70s before founding buyout giant KKR with protégés Henry Kravis and George Roberts. A Navy veteran, Kohlberg provided the majority of KKR’s founding capital and reportedly later felt shunted aside by his younger colleagues as he found himself increasingly at odds with the reality of modern private equity investment practices.

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