| China markets rally after leaders pledge more support, Australia's burgeoning pensions industry is luring investment from Wall Street, and UBS is to pay $387 million in fines for Credit Suisse. — Tiffany Tsoi China's top leaders signaled more support for the real estate sector alongside pledges to boost consumption and resolve local government debt, sparking a rally in China's stocks, the yuan, and the dollar bonds of developers. However, skeptics are questioning whether the gains will prove sustainable. Beijing has repeatedly fallen short of expectations — the rebound in Chinese markets as the nation emerged from strict Covid restrictions has long turned into losses following a stream of increasingly grim data. "These acknowledgments were important and possibly sufficient for markets to breathe a sigh of relief, even though we probably need to wait a while for concrete measures to come through," said Fiona Lim, senior FX strategist at Malayan Banking Bhd. in Singapore. Morgan Stanley chief James Gorman has been tapping his Australian roots to access one of the fastest-growing corners of global capital. The bank's Melbourne-born boss is one of a string of executives from Wall Street and beyond doing more business with the largest players in Australia's A$3.5 trillion ($2.4 trillion) pensions industry. The big attraction: inflows of more than A$1 billion a week that need to find an investment destination. "The market is on a growth trajectory," said Daniel Vanden Boom, managing director at Morgan Stanley Investment Management Australia. The firm works with Australian pensions on co-investing opportunities in areas like infrastructure and property and "our engagement on these topics has never been higher," he said. UBS Group AG is picking up the legal tab of its collapsed Swiss rival. It will pay a total of about $387 million in fines related to misconduct by Credit Suisse Group AG in its dealings with Archegos Capital Management. In a consent order with the Federal Reserve, UBS agreed to pay $268.5 million for "unsafe and unsound counterparty credit-risk management practices" at Credit Suisse, which UBS acquired in June. The Bank of England's Prudential Regulation Authority fined the bank £87 million ($112 million), which it said was its largest penalty to date. The Fed said Credit Suisse "lacked adequate governance, experienced staff with sufficient stature, and sufficient data quality and model-risk management to ensure that activities conducted with counterparties were properly risk managed." Contracts on both the S&P 500 and Nasdaq 100 are extending gains as of 5:07 a.m. in New York. Treasury yields have climbed across the curve, while the dollar has drifted lower. Oil is down, whereas gold and iron ore prices have climbed. A slew of big corporate earnings will be released today — including Microsoft, Alphabet, Visa, Danaher, Texas Instruments, Verizon, Raytheon, GE, GE HealthCare, 3M, GM, Sherwin-Williams, Kimberly-Clark, ADM, Biogen, Snap, EQT, and Spotify. At 9:00 a.m., the IMF is releasing its World Economic Outlook. The US May FHFA House Price Index is also being released at that time.
The US July Conference Board Consumer Confidence Index is due at 10:00 a.m.
At 11:30 a.m., the US is selling $50 billion 42-day CMBs, and at 1:00 p.m., $43 billion 5-year notes. This week, the MLIV Pulse survey is asking: Do you think this AI rally resembles the dotcom bubble? Will Nvidia Corp. become the world's largest company? Are you planning to increase your exposure to tech stocks? Share your views here on big tech and ChatGPT. Here's what caught our eye over the past 24 hours: Over the last year, the US housing market has held up way better than most people would have guessed. At the end of July 2022, the average 30-year mortgage was around 5.2% per Bankrate. Today it's 7.2%. And yet home prices are back on the rise, and homebuilders continue to do well. One commonly cited dimension here is that there aren't many homes for sale on the market. And one factor here is that employment remains robust, so very few people are forced to sell their homes for economic reasons. Yesterday on the podcast, we published an interview with James Egan, a housing strategist at Morgan Stanley, who has been very good on the topic, having consistently predicted housing resilience, in part due to the lack of available supply. One thing that's really interesting though is his argument that even if we were to see a rise in the unemployment rate, it might not induce the supply response many have expected. Stepping back in time for a second, this was obviously a dynamic in 2007 and 2008. As unemployment went up in that downturn, foreclosures soared, inducing a flood of homes for sale onto the market, helping create the nationwide-housing crash that helped catalyze a financial crisis. But that was a different time. Underwriting standards were much worse in the mid-2000s. There were numerous instances where people were hardly putting any equity into their homes. And banks didn't have any infrastructure in place to modify home terms, if a homeowner fell into distress. Since then obviously there's been a huge shift in the mortgage market. Borrower quality is higher. Americans are much less leveraged. And in fact, there's a meaningfully smaller share of homes that have any mortgage attached to them at all these days. Per Egan, only 61-62% of houses have any sort of mortgage attached to them. In 2006/2007 it was closer to 70%. One factor is the swelling ranks of Boomers who simply own their homes outright and aren't moving. Bottom line is there doesn't seem some imminent prospect of tons of homes for sale, even if we were to see an economic downturn. It's a very different housing market than the one we had 15 or 16 years ago.
The whole transcript here is worth reading.
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