North American Morning Briefing: Stock Futures Weaken After Evergrande Payment Deadline Passes

BY Dow Jones & Company, Inc. | CORPORATE | 09/24/21 06:12 AM EDT

MARKET WRAPS

Watch For:

U.S. New Home Sales for August; Kansas City Southern special meeting of shareholders to vote on acquisition by Canadian National Railway.

Opening Call:

Stock futures wavered and bond yields ticked up to multi-month highs, as uncertainty lingered about the future of heavily indebted property giant China Evergrande Group.

"There has been a growing feeling that there is a pullback waiting," said Seema Shah, chief strategist at Principal Global Investors. "The market is so vulnerable to any kind of shock right now given growth is slowing and valuations are looking stretched."

Markets have been whipsawed this week by fears that the possible collapse of Evergrande could spill over into global markets and add to an already darkening outlook for global growth. Evergrande inched closer to a potential default Friday as a deadline on a key interest payment to its U.S. dollar bondholders passed without any announcement.

"It is one of the largest companies in the second largest economy in the world and if something pulls down Chinese growth it is going to pull down global growth," said Ms. Shah.

The company's shares slumped over 12% in Hong Kong as the Thursday deadline for the $83.5 million coupon payment passed. Evergrande's shares have fallen over 80% this year.

In U.S. off hours trading, Meredith Corp. surged 19% off hours after The Wall Street Journal reported the People Magazine publisher was in talks to be acquired by Barry Diller's IAC/InterActiveCorp.

Shares of Nike fell 4% in premarket trading after the sportswear giant lowered revenue guidance, citing supply-chain disruptions in Asia. Rival Adidas slipped 3% in European trading. Shares in warehouse grocery chain Costco ticked up 0.8% after the warehouse grocery giant reported quarterly sales.

Forex:

The DXY dollar index fell, erasing some of the gains in the wake of Wednesday's U.S. Federal Reserve announcement that took it to a one-month high, but investors should return to buy the currency due to prospects of tighter monetary policy, ING said.

"We are still inclined to think markets will buy the dips in the dollar given the reinforced backdrop of policy normalisation in the U.S.," it said.

The Fed said it could start tapering asset purchases as early as November while interest rates could rise by the end of next year. ING said markets for now seem reluctant to "trust" the Fed's interest-rate projections and may need more evidence from U.S. data.

The pound traded steady, failing to build on Thursday's gains after a Bank of England policy statement suggested the central bank was moving closer to tightening monetary policy, and MUFG said it could reverse these gains due to near- term risks to the U.K. economy.

These include reduced pandemic-related support, surging gas prices and continuing supply bottlenecks. The hit to real incomes from surging utility bills just as an increase to benefit payments added during the pandemic is taken away " could undermine consumer confidence and weaken consumer spending," said MUFG's Derek Halpenny.

Sterling advanced nearly 1% versus the dollar Thursday "but near-term elevated risks leave us more wary of the move reversing," he said.

Bonds:

Markets were contending with a rise in government bond yields, after several central banks-including the Fed-this week signaled they were on the path toward removing pandemic-era stimulus measures. The yield on the benchmark 10-Year U.S. Treasury note rose to 1.437% Friday, from 1.408% Thursday, hitting its highest level since July.

OFI Asset Management expects a gradual rise in U.S. and eurozone bond yields by year-end as central banks intend to gradually remove some monetary stimulus, said Jean-Marie Mercadal, head of investment strategies.

OFI AM's year-end targets for the 10-year U.S. Treasury and German Bund yields are 1.75% and -0.20%, respectively, with the expected increases not triggering any major price fluctuations in markets.

Markets seem to have priced in the Fed's intention to scale back asset purchases, he said.

The European Central Bank also decided in September to continue asset purchases at a "moderately lower" level in the coming quarter compared with 2Q and 3Q.

Commodities:

Oil prices rose, with both benchmarks on course for weekly gains. Brent's trading close to its October 2018 high, with UBS's Giovanni Staunovo pointing to the supply disruptions and recovering oil demand that have caused volatility in the market since August.

On top of Hurricane Ida, maintenance work in Kazakhstan, as well as outages in Nigeria, Mexico, and Libya have all contributed to rising prices in recent weeks, he added, forecasting a Brent price of $80 a barrel for the end of the month.

Gold rebounded after a steep fall on Thursday that was prompted by rising bond yields and signs that global central banks could soon hike rates to tame inflation. The precious metal slumped as low as $1,739.70 in the previous session as U.S. treasury yields rose to their highest level since July.

"The market is showing a little bit of a taper tantrum," says Seema Shah, chief strategist at Principal Global Investors, of the rising bond yields. Signs that global central banks were moving to remove pandemic-era stimulus measures are behind the move in bond markets, she said.

TODAY'S TOP HEADLINES

China Evergrande Never Got Auditor Warning Despite Big Debt Load

Last year as China Evergrande Group's stock and bond prices seesawed, it offered deep discounts to keep sales growing during the pandemic and the government effectively said it had borrowed too much.

Yet the property developer's auditor gave it a clean bill of health in an annual report issued this spring.

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China Evergrande Keeps Dollar Bondholders Guessing on Key Interest Payment

Global investors who own China Evergrande Group's U.S. dollar bonds were in the dark Thursday about whether the property giant would make a key interest payment, a major test of the highly indebted developer's ability to avoid a default.

Evergrande was on the hook to make $83.5 million in coupon payments on Sept. 23 on dollar bonds with a face value of $ 2.03 billion. As of late afternoon in New York on Thursday, bondholders hadn't received the money, according to people familiar with the matter.

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Barry Diller's IAC in Talks to Buy Magazine Publisher Meredith

IAC/InterActiveCorp. is in advanced talks to acquire magazine publisher Meredith Corp., owner of brands including People and Better Homes & Gardens, according to people familiar with the situation, in an effort to build more scale in online publishing.

The deal, which is expected to be valued at more than $2.5 billion, would vastly expand IAC's collection of online publications, which include Brides, Serious Eats and TripSavvy, the people said. It would also bulk up IAC's portfolio of websites, which has shrunk recently after the company moved to spin off online-dating behemoth Match Group Inc. and video-hosting and sharing platform Vimeo Inc.

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Nike's Revenue Pinched by Supply-Chain Disruptions

The Covid-19 pandemic has caught up with Nike Inc. The sneaker giant's revenue growth is being limited by supply-chain disruptions that have slowed the production and delivery of shoes and other goods around the world.

Nike on Thursday reported revenue of $12.25 billion for the quarter ended Aug. 31, up 16% from a year earlier and essentially flat with the June quarter. The results were below expectations of Wall Street analysts, who had expected revenue to reach $12.47 billion.

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Costco Sales Rose 17% in Latest Quarter

Costco Wholesale Corp.'s sales increased in its latest quarter but inflationary pressures continued to build.

The company posted $62.68 billion in revenue for its quarter ended Aug. 29, up 17% from a year earlier. Analysts had predicted the chain would report $61.41 billion in revenue, according to FactSet.

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Alibaba, Under Beijing Pressure, Moves to Sell Stake in State-Owned Broadcaster

Alibaba Group Holding Ltd. plans to dispose of its minority ownership in a state-owned broadcaster, the first concrete step the Chinese internet giant is taking to dismantle its sprawling media empire following pressure from Beijing.

Mango Excellent Media, a subsidiary of the government-run Hunan TV, said in a stock exchange filing on Friday that Alibaba plans to sell its entire 5% stake in the Shenzhen-listed company less than a year after buying it. It didn't provide a reason for the proposed sale. Alibaba declined to comment.

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Apple Insists EU Push for Universal Charger Would Repress Innovation, Create Waste

Apple Inc. hit back at European Union moves to introduce a universal charger for smartphones, tablets and other electronic devices, saying such legislation would be anti-innovation and would serve to increase waste.

The European Commission, the bloc's executive arm, said Thursday that it is proposing USB-C as the standard port for smartphones, tablets, headphones, portable speakers, cameras, and some videogame consoles, regardless of the device brand. The move aims to cut waste related to the production and disposal of chargers.

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CDC Chief Backs Pfizer Boosters for Front-Line Workers in Break With Panel

The director of Centers for Disease Control and Prevention said workers at high risk of Covid-19 infection should receive a booster of Pfizer Inc.'s vaccine, in a decision that deviated from the recommendation of an advisory panel that the CDC typically follows.

CDC Director Rochelle Walensky signed off on a series of recommendations from the panel, saying boosters should be offered to people 65 and over as well as those 50 to 64 years with underlying medical conditions, according to the Associated Press. The extra dose would be given at least six months after the last shot.

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Fintech Lender Affirm Leans on Investors to Fund Rapid Growth

Fintech lender Affirm Holdings Inc. is relying more on financing from investors instead of lenders to fund its growth as its "buy now, pay later" installment plans are becoming more popular.

"Buy now, pay later" loans often appeal to customers who don't qualify for credit cards or prefer fixed-payment plans. Consumers spent between $15 billion and $20 billion using such loans on e-commerce purchases in 2020, up from $6 billion to $9 billion in 2019, according to estimates from credit ratings firm DBRS Morningstar.

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Retirement Savers Love the Backdoor Roth IRA Strategy. It Might Not Last.

Many Americans are using a previously little-known tax method to boost their savings. Now, the government is trying to stop it.

The tax strategy at issue is the mega-backdoor Roth conversion and it has allowed some Americans to amass sizable balances in tax-free Roth retirement accounts. On Sept. 15, the House Ways and Means Committee approved legislation from House Democrats that would prohibit use of the mega-backdoor Roth conversion starting Jan. 1, 2022.

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Buying a Share of a Collectible Guitar? In This Market, You May Get Shredded.

Space-tourism companies, flying-taxi startups and pizza-related cryptocurrencies are among the unlikely ventures to have recently reached public markets. Now it is the turn of electric guitars.

This month, American guitar maker Gibson said it would use Rally, a site specializing in collectibles, to issue shares in prototype instruments designed in collaboration with famous players. Ownership of an EDS-1275 doubleneck model approved by Slash, of the band Guns N' Roses, was chopped into 13,000 parts and sold for $5 apiece to 562 investors in just two hours.

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China Evergrande Keeps Dollar Bondholders Guessing on Key Interest Payment

Global investors who own China Evergrande Group's U.S. dollar bonds were in the dark Thursday about whether the property giant would make a key interest payment, a major test of the highly indebted developer's ability to avoid a default.

Evergrande was on the hook to make $83.5 million in coupon payments on Sept. 23 on dollar bonds with a face value of $ 2.03 billion. As of late afternoon in New York on Thursday, bondholders hadn't received the money, according to people familiar with the matter.

Read More ->

Democratic Leaders Scramble to Find Areas of Agreement on $3.5 Trillion Spending Bill

WASHINGTON-Democratic leaders raced Thursday to find enough agreement around a roughly $3.5 trillion spending package to assuage concerns between the party's dueling centrist and liberal factions that threatened to derail a separate vote on an infrastructure package next week.

Liberal Democrats have said the two bills are linked and have balked at voting for the roughly $1 trillion infrastructure package on Monday in the House unless the broader healthcare, education and climate-change package has passed. The infrastructure bill has already cleared the Senate with bipartisan support, and moderates have urged leadership to bring it to the floor in the House.

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IMF Calls for Lending Clamps to Cool Australia's Housing Price Surge

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Talking Markets: Europe Faces Challenging Winter Amid Energy Squeeze

Europe is in for a difficult winter: Energy prices are soaring, and power supply may not stretch far enough, threatening to cause outages, disrupt the continent's industry and hurt the economic recovery.

Electricity prices have risen to their highest levels in more than a decade in recent weeks, according to the International Energy Agency. This is largely attributable to prices for natural gas world-wide, which have soared due to demand being higher than expected, spurred by the global economic rebound, and because of crimped supply.

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German Business Sentiment Falls for Third Month Running in September

German business sentiment worsened again in September, as supply-chain bottlenecks clouded the short-term outlook.

The Ifo business-climate index decreased to 98.8 points in September from 99.6 points in August, data from the Ifo Institute showed Friday. This marks the third consecutive month of decline after it peaked at 101.8 in June.

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U.K. Consumer Confidence Wanes in September on Inflation Fears

Confidence among British consumers took a hit in September, falling to a five-month low, as concerns over high inflation and the end of government support soured consumers' mood.

GfK's consumer-confidence barometer came in at minus 13 in September, down five points from August and missing economists expectations, who had forecast a reading of minus seven when polled by The Wall Street Journal.

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Pelosi Says Government Funding Won't Lapse

WASHINGTON-House Speaker Nancy Pelosi said Congress wouldn't let government funding expire next week, the first hint that Democratic leaders might decouple the government's funding from a contentious increase in the debt limit, on the same day that the Biden administration began preparing for a possible partial shutdown.

The Biden administration said Thursday that federal agencies are reviewing contingency plans in the event that funding runs out at 12:01 a.m. on Oct. 1. The White House said it expects Congress to take action to fund the government after its current funding expires and is preparing out of an abundance of caution.

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America's Cash Might Stay on the Sidelines

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The Federal Reserve on Thursday reported that the net worth of U.S. households was $134 trillion in the second quarter-up from $128.4 trillion in the first quarter. That figure stood at $110 trillion In the fourth quarter of 2019, before the pandemic took hold. Including nonprofits, accumulated household net worth in the second quarter hit a record $141.7 trillion.

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Commerce Secretary Gina Raimondo Aims to Strengthen Business Ties With China

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Democrats Hunt for Redistricting Wins Despite GOP Tilt

DEMOCRATS CLAW FOR SEATS as they face an uphill battle in redistricting. Republicans hold the pen in 20 of the 35 states where legislatures control redistricting and the state has more than one congressional seat, compared with Democratic control of 11 such states, so Democrats are using legal, legislative and political maneuvers to try to improve their position as maps start to take shape.

In Oregon, the Democratic House Speaker withdrew from a deal with Republicans to have a bipartisan commission draw congressional districts, saying Republicans didn't engage constructively. The House will instead move to adopt a map as the state gains a new seat that will likely result in a 5-1 congressional advantage for Democrats, who currently have a 4-1 edge. Republicans are calling the moves shameful, but have little recourse to block the plan, though they will attempt to at least delay it. In Wisconsin, a state with a Democratic governor and a Republican legislature, Democrats have so far successfully advanced a pre-emptive federal lawsuit against Republican-drawn maps (which haven't been finalized). Republicans would prefer any court battles be fought in state courts, which tilt conservative. The state Supreme Court on Wednesday said it would take up a similar lawsuit, as well.

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Trapped in Kabul, Prominent Afghan Women Fear Retribution Under Taliban Rule

KABUL-Nabila, a 31-year-old Afghan judge, used to grant divorces to the wives of militants while their husbands languished in prison. Two days after the Taliban captured Kabul on Aug. 15 and emptied prisons across the country, she received threatening calls from several of these men.

She broke her SIM card, packed light and went into hiding.

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North Korea Calls Peace-Deal Proposal by South's Moon Jae-in Premature

SEOUL-North Korea dismissed a proposal by South Korea's president for a peace declaration, calling the proposition premature as Pyongyang sees what it calls continuing aggression from Washington and Seoul.

During a speech Tuesday at the United Nations General Assembly, South Korean President Moon Jae-in suggested the adoption of a peace deal that would replace the armistice that halted hostilities in the 1950-1953 Korean War. He proposed that the U.S., along with the two Koreas and possibly China, agree to declare the war over.

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U.S. Officials Call for Fines Against Companies That Don't Report Hacks

Top U.S. cyber officials on Thursday urged Congress to add more teeth to any legislation forcing firms that operate critical infrastructure to disclose hacks, calling for a narrow reporting window after a breach and fines against companies that don't comply.

Such mandates could help federal agencies and critical economic sectors to respond to incidents, security experts say. But many businesses and some lawmakers are wary of the tighter regulation and potential penalties for which the Biden administration is advocating.

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Write to sarka.halas@wsj.com

TODAY IN CANADA

Earnings:

Nothing major scheduled

Economic Indicators (ET):

Nothing major scheduled

Stocks to Watch:

No items published

Other News:

No items published

Market Talk:

No items published

Expected Major Events for Friday

00:30/JPN: Sep Japan Flash Manufacturing PMI

05:00/JPN: Aug Supermarket sales

05:30/JPN: Aug Tokyo area department store sales

05:30/JPN: Aug Nationwide department store sales

08:00/GER: Sep Ifo Business Climate Index

08:00/ITA: Sep Consumer Confidence Survey

08:00/ITA: Sep Business Confidence Survey

08:59/JPN: Jul Final Labour Survey - Earnings, Employment & Hours Worked

10:00/UK: Sep CBI Distributive Trades Survey

14:00/US: Aug New Residential Sales

All times in GMT. Powered by Kantar Media and Dow Jones.

Expected Earnings for Friday

ASA Gold & Precious Metals Ltd (ASA) is expected to report for 2Q.

Carnival Corp (CCL) is expected to report $-1.44 for 3Q.

Great Elm Group Inc (GEG) is expected to report for 4Q.

PFSweb (PFSW) is expected to report $0.01 for 2Q.

Taylor Devices (TAYD) is expected to report for 1Q.

Powered by Kantar Media and Dow Jones.

ANALYST RATINGS ACTIONS

Allogene Therapeutics Raised to Outperform From Market Perform by Raymond James

Amgen Cut to Neutral From Outperform by Daiwa Capital

AvalonBay Raised to Hold From Sell by Deutsche Bank

Delta Air Cut to Hold From Buy by Argus Research

Eargo Cut to Equal-Weight From Overweight by Wells Fargo

Eargo Cut to Market Perform From Outperform by William Blair

Eargo Cut to Underweight From Overweight by JP Morgan

Equity Residential Raised to Hold From Sell by Deutsche Bank

General Dynamics Raised to Neutral From Sell by Goldman Sachs

L3Harris Technologies Cut to Sell From Neutral by Goldman Sachs

Lockheed Martin Cut to Neutral From Buy by Goldman Sachs

Mercury Systems Cut to Neutral From Buy by Goldman Sachs

Northrop Grumman Raised to Neutral From Sell by Goldman Sachs

Plug Power Raised to Overweight From Neutral by Piper Sandler

RBC Bearings Raised to Buy From Hold by Truist Securities

Roku Raised to Buy From Neutral by Guggenheim

Signify Health Cut to Neutral From Outperform by Baird

Trimble Cut to Underweight From Equal-Weight by Morgan Stanley

United Rentals Cut to Mixed From Positive by OTR Global

Ventas Raised to Strong Buy From Outperform by Raymond James

Warner Music Group Raised to Overweight From Equal-Weight by Barclays

This article is a text version of a Wall Street Journal newsletter published earlier today.


  (END) Dow Jones Newswires
  09-24-21 0612ET
  Copyright (c) 2021 Dow Jones & Company, Inc.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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