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It was a meltdown for equities in the U.S. session, while Treasuries surged. Meanwhile, China is looking at a pension shortfall and the Reserve Bank of Australia is set for a policy decision. Here are some of the things people in markets are talking about.
Markets Tumble Again
It's a sea of red across Asian equity futures, after U.S. stocks plunged the most in more than six years and volatility roared back into the market as the S&P 500 sank 4.1 percent. The rout exceeded selloffs that followed China's shock devaluation of the yuan in 2015, the Brexit vote in 2016 and jitters heading into the most recent U.S. presidential election. Trading volume was almost double the 30-day average. All but two stocks in the broad gauge declined. At its peak, the Cboe Volatility Index (or VIX) more than doubled. As if that weren't enough excitement, Bitcoin tumbled for a fifth day, dropping below $7,000 for the first time since November. It led other digital tokens lower as a backlash by banks and government regulators against the speculative frenzy that drove cryptocurrencies to dizzying heights last year picked up steam.
China's Next Debt Bomb
China's pension shortfall is emerging as the next big challenge for policy makers as they intensify their years-long campaign to keep rising debt from derailing the economy. Aging in the world's most populous country means pension contributions by workers no longer cover retiree benefits, forcing the government to fill that gap since at least 2014. Pension expenses rose 11.6 percent to 2.58 trillion yuan ($410 billion) in 2016, leaving the government a 429.1 billion yuan tab to cover the shortfall, according to the latest available data from the Finance Ministry.
RBA on Tap
Australia is emerging as an outlier in the developed-world story of faster economic growth and inflation, pushing the central bank to the sidelines as flat wages and a strengthening currency keep prices in check. Reserve Bank of Australia Governor Philip Lowe and his board will keep interest rates unchanged at a record low for an 18th month at Tuesday's policy meeting, the year's first, money market bets and economists' forecasts show. Neither see a serious chance of tightening before the fourth quarter, while a vocal minority expect policy makers will stand pat all year.
Samsung Heir Freed
A South Korean appeals court let Samsung Electronics Co. Vice Chairman Jay Y. Lee walk free from prison after suspending his sentence for bribery, a stunning reversal that raises questions about the government's ability to reform the nation's most powerful corporations. The heir to the country's largest conglomerate had appealed his sentence, which the court reduced by half to two and a half years on Monday. He will be on probation for four years, the court said. For many in South Korea the Samsung heir's victory is a setback to President Moon Jae-in's pledge to curtail the power of the chaebol, the family-run businesses that have dominated the economy for decades.
Coming Up…
On the data front, Australia reports its trade balance and retail sales, plus there's Bank of Korea meeting minutes, Malaysian central bank reserves and inflation figures coming for the Philippines and Taiwan. Tokyo will be in focus with Toyota reporting 3Q earnings and U.S. Vice President Mike Pence visiting for talks with PM Shinzo Abe. The European day will be highlighted by German factory orders and BP earnings, while the American session brings data forecast to show the U.S. trade balance widened in December to a nine-year high, plus St. Louis Fed President James Bullard speaking about the U.S. economy and monetary policy.
What we've been reading
This is what caught our eye over the last 24 hours.
- Otto Warmbier's father will join the U.S. VP at the Olympics.
- It's hard to find a Japan stock bear.
- Can science beat jet lag?
- Potential winners in the Hainan gambling plan.
- IATA objects to Singapore Changi pre-funding plan.
- This AI startup promised bespoke shirts from a single photo. They didn't fit.
- Need a break from people? Try a desert escape.
--With assistance from Garfield Clinton Reynolds and Michael Heath
To contact the editor responsible for this story: Boris Korby at bkorby1@bloomberg.net.
©2018 Bloomberg L.P.
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