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China’s home buyers get angry

Bloomberg
U.S. stocks recovered to end a holiday-thinned session nearly flat, after initially tumbling in echoes of European and Asian shares. Pakistan is going to seek a bailout from the International Monetary Fund. Here are some of the things people in markets are talking about.

Clawback

Asian futures were lower on Tuesday after U.S. stocks clawed back steepearly losses. Investors sought bargains in beaten-down utilities and consumer shares after a two-day swoon. Technology firms remained lower on concerns that trade tensions with China are rising again. The S&P 500 Index retraced just about all of an earlier slide, while the Nasdaq 100 Index fell to the lowest level since Aug. 1 on its third day of declines, with software companies and semiconductor manufacturers the worst-performing groups in the market. Volatility appears to be returning, with the Cboe Volatility Index, or VIX, at one point touching its highest intraday level since June. That’s all after Chinese and Indian stocks fell and the PBOC cut the required reserve ratio for some lenders.

Trouble on the Home Front

Home buyers angry that apartments are being sold for much less than they paid swamped property developers’ marketing offices across China over the Golden Week holiday, demanding their money back. A sales center for Xinzhou Mansion, a project of Country Garden Holdings Co. in Shangrao, a city in Jiangxi province, was mobbed last Thursday, videos and pictures circulated on social media show, its windows smashed by scores of protesters throwing rocks. They’re furious that Country Garden is selling units for prices around 30 percent lower than a year ago. Chinese property developers are offering free luxury cars and hefty discounts to lure buyers as lending curbs and funding constraints squeeze their finances.

Pakistan Turns to the IMF

Pakistan will seek a bailout from the International Monetary Fund as the government looks to stabilize the economy and plug dwindling finances. After consulting with “leading economists,” Pakistan will formally approach the IMF for support, and Finance Minister Asad Umar will hold talks with officials during the lender’s annual meetings in Bali this week, the Finance Ministry said in a statement late Monday. Umar told Bloomberg in August that the government may need more than $12 billion.

A Yield-Curve Mea Culpa

Morgan Stanley has thrown in the towel on one of its high-profile predictions for 2018 — a call that the U.S. Treasury yield curve from the two-year to the 30-year would flatten completely. The forecast was based on expectations for gradual monetary policy tightening by the Federal Reserve and deterioration in the forward growth outlook. Morgan Stanley’s global head of interest-rate strategy, Matthew Hornbach, broadened it in June, adding a two- to 10-year flattener and a bet that the 10-year yield had peaked for the year at 3.12 percent in mid-May. Investors should go long at the prevailing level of 2.90 percent with a view toward a mid-2019 level under 2.75 percent, he said at the time. Last week saw the pain threshold breached, or at least Hornbach’s patience exhausted, as the 10-year yield climbed to fresh year-to-date highs north of 3.20 percent.

Adding Up North Korean Hack Attacks

A North Korean hacking group that focuses on financial gain for the rogue state has penetrated banks around the world with a series of ongoing attacks and has tried to steal at least $1.1 billion over the last four years, according to a new tally by cybersecurity firm FireEye Inc. The group, which FireEye identified as APT38, has infiltrated more than 16 organizations in 11 countries, including the U.S., and stolen more than $100 million. The hackers have gotten past heavily defended servers at banks and spent time scouring the networks. Security officials should be alarmed, FireEye said last week in a report.

What we’ve been reading

This is what caught our eye over the last 24 hours.

And finally, here’s what David’s interested in this morning

This week’s most important market event is probably China’s debt sale on Thursday. Given sentiment is virtually at rock bottom, Beijing will be looking to price this extremely carefully to ensure the deal goes smoothly. And that’s the tricky part because of the contradictions in economic objectives right now. China needs to support growth, yet it also needs to squash speculation that the currency’s headed down the toilet. Pricing high obviously risks a lukewarm reception but it keeps rates anchored and provides a reasonable pricing curve for Chinese firms looking to tap the debt markets. Pricing low stokes demand, but may be seen as a signal more easing is ahead. That may give traders another reason to sell the yuan on top of what the PBOC gave us on the weekend.

As my colleague Emma Dai pointed out on Monday, the options market is the most bearish on the currency in eight months, looking at offshore yuan risk reversals. Some analysts still don’t see Beijing allowing a drop below the 7-handle against the dollar, yet 12-month forward points suggest we’re basically there. Plus, pricing too cheap might send a bearish signal to an already unstable sovereign bond market. Watch out for this. It’s a dollar offering of 5-, 10-, 30-year maturities worth $3 billion. Issuer: People’s Republic of China.

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