Saudi leadership upheaval, Trump warns world of U.S. military dominance, and China’s central bank chief sounds alarm on financial vulnerabilities. Here are some of the things people in markets are talking about.
At least 17 high-profile Saudi Arabians — including senior princes, current and former government ministers, and businessmen — were arrested by security forces this weekend on the orders of King Salman. The purge is being billed as a crackdown on corruption, but also concentrates power around King Salman’s son, Crown Prince Mohammed bin Salman, and may promote a smoother succession. Among those detained: the billionaire Prince Alwaleed bin Talal, whose publicly-traded investment vehicle — which owns sizeable stakes in Citigroup, Twitter, Apple, and Lyft, to name a few – plunged on Sunday. A director of Saudi Aramco has also been implicated in the probe. Atlas Merchant Capital Chief Executive Officer and former Barclays chief Bob Diamond told a conference of bankers that the moves signal the kingdom is becoming more open and “a better destination for us to invest.” The Tadawul All Share Index initially tumbled in trading on Sunday before ending in positive territory amid suspected support from the government and Public Investment Fund. That’s not all that happened in Saudi Arabia this weekend: its military air defenses intercepted a ballistic missile fired at the international airport in the nation’s capital, Riyadh. Yemen rebels claimed credit for the attempted attack. Lebanese Prime Minister Saad al-Hariri resigned his position in a speech delivered in Saudi Arabia, a surprise move that has the potential to bring about renewed confrontations between the kingdom and Iran.
U.S. President Donald Trump warned rogue nations against challenging his country when addressing American troops in Japan, the first stop of his visit to Asia. “We dominate the sky, we dominate the sea, we dominate the land and space,” he told U.S. forces, before going to meet Japanese Prime Minister Shinzo Abe for nine holes of golf. Trump and his Japanese counterpart will hold a joint briefing on Mondayafternoon in Tokyo.
During his five-nation tour of Asia, the president will look to reassure allies in Japan and South Korea over the threat posed by North Korea and build more bridges with Chinese President Xi Jinping. After taking off, Trump has decided to extend the trip in order to stay for the start of the East Asia Summit — which he now calls “the most important day” of his foreign excursion. The journey abroad hasn’t diminished the president’s social media presence, however: on Saturday, Trump tweeted that he’d “very much appreciate” if Saudi Arabia were to list Saudi Aramco on the New York Stock Exchange.
Contagious and Hazardous
“Hidden, complex, sudden, contagious and hazardous” risks are accumulating in China’s financial system, warned Zhou Xiaochuan, governor of the nation’s central bank. The remarks, published on the central bank’s website on Saturday, are the latest in a series of warnings from the People’s Bank of China chief on the potential vulnerabilities to the financial system in light of elevated leverage. Zhou’s article also referenced the need for tougher regulation and increasing the financial openness of the world’s second-largest economy. Concerns over an accelerated deleveraging drive by Chinese authorities in the wake of the 19th Party Congress roiled the nation’s bondsand led to corporate defaults before liquidity injections by the central bank last week helped alleviate some stress. Though China has signaled its intention to keep economic policy relatively steady following its twice-a-decade Congress, Zhou won’t be at the helm of the PBOC for too much longer as he’s poised to retire.
Central Bank Shuffles
There’s more turnover at the top of the Federal Reserve. New York Fed President Bill Dudley may soon announce his retirement, according to CNBC. A high level of event risk last week failed to create any major waves in bond markets, as Jerome Powell’s nomination to succeed Janet Yellen as the U.S. central bank’s chair was widely anticipated and the October non-farm payrolls report showed wage growth flatlined on a monthly basis. Simon Potter, executive vice president at New York Fed, will deliver a speech in Frankfurt at 7:30 p.m. Tokyo time; Dudley himself will deliver remarks in the U.S. later in the day. For traders in Asia, a speech from Bank of Japan Governor Haruhiko Kuroda delivered in Nagoya at 10:00 a.m. Tokyo time may command more attention. The odds of Kuroda being re-appointed to a second term have seemingly swelled after the governor’s work was praised by Prime Minister Shinzo Abe as well as Finance Minister Taro Aso last week. The minutes from the central bank’s September meeting are slated for release roughly an hour before Kuroda is due to speak. Toshitaka Sekine, chief economist at the Bank of Japan, will also speak at 4:00 p.m. Tokyo time.
In the pre-market session, Nikkei 225 and S&P/ASX 200 futures are both pointing for a positive start to the week for both equity gauges. Strategists are growing increasingly optimistic on the benchmark Australian index’s prospects of breaking above 6,000 for the first time since 2008. It’s a relatively light day for economic data in the region, with Indonesian third-quarter GDP growth, forecast to moderate to 3.24 percent quarter-on-quarter from 4 percent in its previous reading, headlining Monday’s events. At 9:30 a.m. Tokyo time, we’ll get the Nikkei Japan Services PMI for October, which has been pointing to a deceleration in the nation’s growth in the second half of 2017. The monthly change Australian job advertisements in October are also due out.
And finally, here’s what David’s interested in this morning
Up until around six weeks ago, the race to 24,000 was a one-horse contest for the Dow Jones Industrial Average. But from out of nowhere, the Nikkei 225 just went on a scorcher that was frankly one for the books. Since the start of October, it’s only closed lower twice (one of which was a fraction of a fraction of a fraction of a point). I know the topic is slightly on the trivial side but it shows you how quickly a major market like Japan can go through a re-rating when the stars align. This reporting round has been
one of the best in decades with a major caveat. If Donald Trump does manage to channel his inner Santa and deliver a giant tax cut by Christmas, the Dow likely gets a year-end dose of nitrous oxide. Until then, the wind behind the Nikkei feels like it’s packing a lot more spunk with the second half of the earnings season still ahead.
I tweeted out a version of the chart above. My billions of followers were keen to chime in. Four had the Nikkei. One had the Dow. And four decided to be funny and go with Bitcoin. Whoever gets there first, one thing is sure: Bruno Mars is not just this generation’s most talented musician. He might just also be the most underrated financial prophet. Shortly after the US elections this time last year, he released his latest album – 24K Magic.