Market Watch I Kristal Weekly Feed I 2nd September 2019
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Kristal Weekly Feed | 2nd September 2019

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All you need to know, in under 1 minute.

Here’s a concise report on what made headlines in the global market last week.

Positives

  • Dow and U.S. Stocks buoyed with hopes that trade tensions will mitigate soon
  • ‘Too Big to Fail’ Makes Eskom Debt a Good Bet for Bondholders

Negatives

  • August ’19 ends as second-worst month of the year for the Dow and the broader Stock Market
  • Antique China Debt: Trump’s New Trade War Tool

Now, for more detail.

Positives 

1. Dow and U.S. Stocks buoyed with hopes that trade tensions will mitigate soon

What You Should Know

Beijing is hoping for continued trade talks with the United States after positive remarks from a Chinese government official on 29th August. That Thursday was said to have been the best day for stocks in the two weeks. With the Dow (INDU) closing at 326 points, or 1.3% higher, the S&P 500 (SPX) finishing at 1.3% higher, and the Nasdaq Composite (COMP) closing up at 1.5%, both The Dow and the broader U.S. stock market are buoyed by hopes that trade tensions between the United States and China might ease.

What You Should Lookout For 

Amid the faint optimism, markets are still at the mercy of trade headlines. The watch is going to be as crucial as fear-induced. Better to be prepared for the most uncertain results the next few days, while hoping for the best.

Suggested Reading:

Stocks rally on hopes that trade tensions will ease

 

2.‘Too Big to Fail’ Makes Eskom Debt a Good Bet for Bondholders

What You Should Know

South Africa’s pledge not to let Eskom Holdings SOC Ltd. fail has restored yield-starved bondholders’ faith in the company further. Bondholders from New York to Seoul want to continue holding onto the power company’s securities, because of their extra return relative to the country’s sovereign debt.

The government’s pledge that it won’t let the company default, effectively guaranteeing the debt, has led investors to play that spread without too much risk even though Eskom isn’t generating enough cash to service its own liabilities.

What You Should Lookout For 

Ever since Ramaphosa has expressed that he would not give up on Eskom, investors holding Eskom bonds are seeing that there is a higher probability that the government will save the company, since the company is just too important for its economy.

Suggested Reading:

‘Too Big to Fail’ Makes Eskom Debt a Good Bet in Low-Yield World

 

Negatives

1. August ’19 ends as second-worst month of the year for the Dow and the broader Stock Market

What You Should Know

Trade tariffs, retaliation, harsh rhetoric and recession warnings have been flashing from the bond market this month. After the Dow slipped 1.7%, while the S&P was down 1.8%, and the Nasdaq shed 2.6%, stocks logged their second worst month of this year, after May. Although August is typically considered to be a quiet month for the market, this hasn’t held true of late.

What You Should Lookout For 

As the trade tensions between U.S. and China escalated, concerns of a currency war might be on the way, particularly after the Chinese government devalued its yuan to fall below the 7-to-1 ratio against the US dollar for the first time in a decade. Also, President Donald Trump comminuted an additional 10% of tariffs on $300 billion of Chinese imports on the first trading day in August, which led the Dow to its biggest intraday swing of the year.

Suggested Reading:

Dow logs second-worst month of the year

 

2. Antique China Debt: Trump’s New Trade War Tool

What You Should Know

As U.S.-China trade war doesn’t seem to see a conclusion, President Trump finds another trade war tool to spar with China. Century-old claims on Chinese bonds sold before the founding of the communist People’s Republic are now being probed by the Trump administration.

The defaulted China bonds can be found hides of thousands of Americans, or on EBay, where the certificates sell as collectibles for as little as a few hundred dollars each. The PRC, which succeeded the Republic of China after it replaced the imperial dynasty, has never recognized the debt, though that hasn’t stopped decades of attempts to collect payment on it.

What You Should Lookout For

According to Jonna Bianco, a Tennessee cattle rancher who leads a group representing pre-revolutionary China bondholders, China is in selective default, having paid out on bonds held by British investors in 1987 as part of the Hong Kong handover deal negotiated by former Prime Minister and ‘Iron Lady’ Margaret Thatcher. If China doesn’t pay out, she says, it should be blocked from selling new debt in international markets.

China, apparently now owes more than $1 trillion on the defaulted debt, once adjusted for inflation, interest, and other damages—a sum roughly equivalent to China’s holdings of U.S. Treasuries.

Suggested Reading:

Trump’s New Trade War Tool Might Just Be Antique China Debt