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Jul 16, 2018

The Wall Street Journal I Markets.

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Hello there. I'm Chelsey Dulaney in New York. Let's get you up to speed for another week in markets. 
Earnings season will pick up speed this week after unofficially kicking off on Friday. BlackRock and Bank of America reports are already out, and we'll be watching Netflix's report after the closing bell this afternoon.
We're also awaiting June retail sales later this morning. But first, the WSJ's Julie Wernau explains why some emerging markets are cutting back on dollar bond issuance. 
 

Markets in a Minute

Markets Data
 

Overnight Developments

  • Global stocks turned in a mixed performance Monday after weak Chinese economic data and ahead of a busy week of corporate results.
  • Read our full market wrap here
 

Market Volatility Saps Demand for Dollar Debt

By Julie Wernau, emerging markets reporter
Companies in the emerging world are on a dollar-debt diet.
Just a few months ago, investors were eager to reach for yield in the farthest reaches of the world. Currencies in the developing world were enjoying a period of relative strength against the dollar, which had its worst performance in 14 years in 2017.
Relatively low U.S. rates and rising currencies encouraged emerging-market governments and companies to issue new debt in the U.S. currency. Dollar-debt issuances among corporates in the emerging world reached a record high in 2017, according to Dealogic. Hard currency debt in emerging markets peaked in the first quarter of 2018 at $5.5 trillion, with corporates accounting for 78% of that, according to the Institute of International Finance.
Now, rising U.S. interest rates are lifting borrowing costs for emerging markets and making their assets seem less attractive to global investors. That’s sparked big selloffs in the currencies of countries like Argentina, Hungary, Turkey, Poland and Chile, making it more difficult for them to pay back dollar debts.
“We lived so long in a declining interest rate environment that banks could say we can issue more cheaply this year than we did last year," said Roger Horn, executive director in fixed income sales and trading on the emerging markets desk at SMBC Nikko Securities America. "That’s not the case right now.”
Corporate defaults in emerging markets have tripled so far in 2018, according to S&P Global Ratings.
Meanwhile, dollar-debt issuance from corporates is down 14% year-to-date versus the same period last year. Local currency debt is on the rise, up 4% year-to-date versus the same period last year, as corporates turn inward for financing amid widespread selling among foreign investors.
While recent money flows data shows that investors are continuing to steer clear of corporate bonds in the emerging world, there are signs that risk appetite could be returning.
In the week ended July 11, emerging markets bond funds snapped their longest run of outflows since the third quarter of 2015, according to EPFR Global.
Will the emerging market rout last? Let the author know your thoughts at julie.wernau@wsj.com.

 

Market Facts

  • The KBW Bank Index fell 1% on Friday as upbeat earnings reports from JPMorgan and Citigroup failed to restore investor confidence in the sector.
  • The S&P 500 has failed to exit correction territory for 108 trading days, the longest stretch since 2008. If that continues through Monday, it will mark the longest such streak since 1984.
  • Norway's Oslo All-Share index is up 10% this year, outperforming U.S. and European indexes thanks to strong demand for salmon.
 


 

Key Events

U.S. retail sales, due out at 8:30 a.m. ET, are expected to rise 0.6% in June from the prior month. Spending at U.S. retailers has been accelerating this year, helping drive broader economic growth.
The Empire State Manufacturing Survey, also expected at 8:30 a.m., is expected to slip in July. New York manufacturers have been reporting strong growth in recent months.
Business inventories are expected to rise at a slightly higher pace in May. The data are out at 10 a.m.
 

Must Reads

Retailers are under threat from online competitors such as Amazon.com Inc., which owns the Whole Foods grocery chain./PHOTO: Richard B. Levine/Zuma Press
Economists have discovered an unsettling phenomenon. As top companies get more productive, gains are stalling for everyone else. That gap is widening as new technology and globalization deliver the biggest rewards to titans of the global economy.
U.S. stocks are rising despite trade fears. Strong profits and spending are leading investors in the U.S. to overlook the risks of a downturn. It’s a different story in some overseas markets.
China’s growth slowed slightly in the second quarter. The country’s economy grew 6.7% in the three months ended June from a year earlier, in line with market expectations.
The U.S. wants to protect agriculture markets from high-frequency traders. Starting Aug. 1, the Agriculture Department will change how it releases crop and livestock reports, an attempt to placate critics who say fast traders are reaping profits in wheat, corn and soybean futures at the expense of slower investors.
Boeing and Airbus are straining to deliver promised new jets. Swamped with new orders, the two are angering customers and delaying payments in some cases after missing multiple deadlines for deliveries.
Cryptocurrency exchanges are getting hacked because it’s easy. Regulatory gaps and insufficient levels of defense have made some exchanges simple to breach.
 

What We've Heard on the Street

“If housing prices in China do start dropping rapidly, or big capital outflows re-emerge, the next 12 months could see Chinese currency and debt markets once again running into major trouble.” Read more.
— Heard on the Street's Nathaniel Taplin
 

Stocks to Watch

Mark Lennihan/Associated Press
Amazon—Up 0.4%: The e-commerce giant’s annual Prime Day, when the company offers a slew of discounts aimed at showcasing its membership service, starts Monday at 3 p.m. EDT and will last 36 hours. 
Netflix—Up 0.9%: Shares of the streaming firm dropped 4.2% Friday, though they are still up 106% this year. Netflix reports earnings after the market closes on Monday.
SIGA Technologies—Down 0.1%: The Food and Drug Administration approved the pharmaceutical company’s smallpox therapy, the first of its kind, late in Friday’s session.