Stocks fall as a result of renewed growth concerns out of China. The S&P500 fell 0.7% to 2,003 and the Dow Jones lost 0.3% to 17,081. Fresh concerns that China’s growth is stalling halted commodity price advances. Similarly US corporate earnings shifted into attention and many companies are expected to show earnings contraction from the previous year. Economic data out of China showed a 3.7% drop in exports but what was more concerning was a 20.4% drop in imports which shows the extent of the economic slowdown. Following todays data analysts further expect a weak outlook for industrial production and investment as a result of lower demand for imports. These developments push down commodity currencies such as the Australian and Canadian dollars which were down 1.4% and 0.2% against the US dollar respectively. The euro rose 0.3% against the dollar to $1.1387 as markets expect the Fed to hold off on raising interest rates this year. The dollar rose 0.5% against the British pound to $1.5260 (dollars per pound) after CPI data reflected 0.1% deflation over the last year.
Daniel Tarullo of the Fed conveys a dovish message on an interview with CNBC. His current view is that it would not be wise to raise interest rates in 2015. Janet Yellen and Stanley Fischer on the other hand have most recently been in favor of tightening this calendar year. However Daniel Tarullo and Lael Brainard do not seem to be in support of that decision. Tarullo and Brainard are both voting members of the FOMC who are typically neutral on the dovish to hawkish spectrum. This division increases short term uncertainty as a result of unclear messages being sent by Fed officials. Tarullo wants to wait for “tangible evidence” that inflation is set to pick up before raising interest rates. According to Tarullo a premature rate rise is harder to deal with than holding off a little longer.
The US dollar is up on emerging market currencies on global growth concerns after China’s weak trade data. The Brazilian real fell 3.3% to R$3.8878, the Malaysian ringgit down 2.1% to 4.2165, the S. African rand 1.6% to 13.5303, the Austrailian dollar down to $0.7262 and the New Zealand Dollar down 0.8% to 0.6663. Risky assets around the world were down today in particular equities, high yield, and commodity currencies.
Energy and mining company Billiton is planning to issue $3bn in US hybrid bonds. This offering will be a good gauge of investor demand for energy related investments. Recent support in oil prices should support demand for the issuance however it comes at a time when investor appetite for bonds has been low. Metals and mining yields have gone from 3.3% in April to as high as 6.4% in September at the peak of China’s turmoil back down to 5.3% currently. Hybrid bonds are a particularly risky type of debt that is most junior in the capital structure. These products combine equity and debt features, and payments can be deferred. It allows the company to raise capital without diluting existing shareholders. They are hoping to price with a 7% yield on a 60 year bond that is callable in 10 years. Billiton is also considering raising in euros and British pounds. The company is rated A1 by Moody’s and A+ by S&P. Bank of America, Barclays, BNP Paribas, and Goldman Sachs are underwriting the deal.