Summary for the 16th of April 2019


Not many surprises from the economic indicators yesterday. The US NY Empire State Manufacturing Index rose more than the market expected in April. Though the optimism about six month outlook fell to the lowest level in three years.

The US Net Purchases of US Treasury Bonds and Notes showed that China had increased its holding of US treasuries for the third consecutive month in February. In total, foreign bond investment in the US increased by 51 billion dollars. China and Hong Kong accounted for 6 billion of these. Most of China holdings in the US treasuries were through foreign institutions that hold the treasuries for their clients. Accounted for these institutions, China’s holding in US treasuries declined in February.

China’s foreign exchange reserve isn’t a political mean in trade negotiation, it reflects China’s current account and the central bank’s assessment of the domestic liquidity. When the current account is worsened, it leads to a reduction in the foreign exchange reserve.

China can’t use these reserves to pressure the US (large sale off of US treasuries to drive up the bond yields). From the historical evidence, we have seen that whenever China sells the US treasuries, the treasury yields tend to fall. This is because when China sell these treasuries, it is signaling the financial market of uncertainty. Uncertainty leads to investments in safe haven, and the US treasuries are one of the safe haven investments.

Indices for 16th of April.  Goldman Sachs and Citigroup’s lower than expected earnings have led the US stock exchange in negative yesterday.

Dow: -0.1% (15th   of April)
S&P 500: -0.1% (15th  of April)
Nasdaq: -0.1% (15th  of April)
Nikkei: +0.3% (16th of April)
Chinese indices: +1.4% (16th of April)
STOXX Europe 600 Index: +0.29% (16th of April)

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