China Weighs Options To Blunt U.S. Sanctions
In a war with the U.S. over Taiwan, China would need to create a global network of companies under U.S. sanctions, seize American assets within its borders, and issue gold-denominated bonds, according to Chinese government-affiliated researchers.
Tesla Factory In Mexico Is Still On The Table
Mexico’s Nuevo Leon state said yesterday that Tesla (TSLA.O) was still planning to build a factory and that the government would spend more than USD 130 million on infrastructure to support construction, a day after CEO Elon Musk said he was hesitating on the project.
Toyota To Adopt Tesla’s Charging Standards By 2025
Japan’s Toyota Motor (7203.T), the world’s largest automaker by sales, said that it had signed an agreement to adopt Tesla’s (TSLA.O) electric vehicle (E.V.) charging technology from 2025. Ford (F.N), GM (GM.N) and Nissan (7201.T) are among its peers to have followed suit.
Today’s News
The U.S. economy’s strength and prolonged tight labor markets could still require tougher borrowing conditions to keep inflation under wraps, Fed Chair Jerome Powell said yesterday, though rising market interest rates could incite action by the central bank itself.
It would seem that Powell is aligning himself with Fed colleagues who have recently said the bond market is now doing some of the central bank’s work for it, Powell in remarks to the Economic Club of New York agreed “in principle” that the rise in yields was helping to further tighten financial conditions and “at the margin” might lessen the need for additional Fed rate increases.
However, it was not an explicit endorsement of that view, but financial markets seemed to have read it as one. As Powell spoke, investors leaned further into bets that the Fed is done raising its short-term benchmark interest rate. Futures that settle to the Fed’s policy rate are now priced less than a one-in-three chance of another rate hike for the year, down from about 40% before he spoke.
The interest rate on 10 and 30-year Treasury bonds rose as Powell made his remarks.
“The whole idea is to affect financial conditions,” Powell said. “Bond markets are producing tighter financial conditions right now,” and seemed to be moving for a variety of reasons, portraying the strength of the U.S. economy.
Other related news include:
Treasury Yields Surge Prior To Powell Speech
U.S. stocks ended noticeably lower yesterday, with shares of Tesla falling after its third quarter results and Treasury yields surged as Federal Reserve Chair Jerome Powell spoke about monetary policy while investors worry whether interest rates would stay higher for longer.
Tesla (TSLA.O) shares dropped a day after the carmaker missed Wall Street expectations on the third quarter gross margin, profit and revenue, and its CEO Elon Musk said he was concerned about high interest rates affecting demand.
U.S. Yield Curve Closes In On Historic Level
Another watershed day for U.S. Treasuries yesterday as the entire curve came within a whisker of trading above 5%, weighing heavily on Asian market sentiment today and potentially sealing one of the biggest weekly losses for regional stocks in months.
The gloomy end to the week comes as investors also await inflation figures from Japan, Malaysia and Hong Kong; remarks from Bank of Japan governor Kazuo Ueda; and an interest rate decision from China.
5% Treasury Yields Would Cause Commotions
The yield on the benchmark 10-year Treasury which moves inversely to hit 5% late Thursday, a level last seen in 2007. Expectations that the Federal Reserve will keep interest rates elevated and mounting U.S. fiscal concerns are among the factors driving the move.
The USD 25 trillion Treasury market is considered to be the bedrock of the global financial system, soaring yields on U.S. government bonds have had wide-ranging effects. The S&P 500 is down approximately 7% from its highs of the year, as the promise of guaranteed yields on U.S. government debt draws investors away from equities. Meanwhile, mortgage rates stand over 20-year highs, weighing on everything from stocks to the real estate market.
