The S&P 500 is falling in morning trading after hitting another all-time high yesterday.
The index is down 0.6%, trading at 1743. It’s closed up for five days in a row, and has risen in 9 of the last 10 trading sessions for a total gain of 5% from its government shutdown low.
The yield on the 10-year U.S. Treasury note is trading at 2.49%, two basis points below Monday’s close.
The FHFA House Price Index was the only datapoint released in the U.S. this morning, and though price appreciation slowed more than expected, the release didn’t move the market.
A story about Chinese banks has been cited as a reason for worry among market participants this morning.
Brown Brothers Harriman global head of currency strategy Marc Chandler disagrees.
In a note on his blog, he writes:
After falling sharply in recent days, especially yesterday after the disappointing jobs data, the US dollar is broadly higher today, with the yen the main exception. It has strengthened by almost 1% today.
Many are attributing the price action to news that the five largest Chinese banks tripled the bad loans written off in the first half of the year to CNY22.1 bln (~$3.65 bln). Yet, tellingly and importantly, the Chinese banks had already made the provisions and thus did not, reportedly, impact the record profits (~$76 bln) in H1.
There is some speculation that this is a precursor to a wave of defaults, but in itself writing off the bad loans is a very important step in its own right. It is a step toward modernization and liberalization. Provisioning for bad loans and then drawing on those provisions is part and parcel of a modern banking system.
Precisely why one would sell, say the New Zealand dollar, the weakest major currency today, losing about 1.4% through the European morning, or the Mexican peso, which, with a 0.8% loss is the weakest among the emerging market currencies, in response to Chinese banks writing off bad loans in the first half of the year, is not immediately self-evident. Indeed, not writing off bad loans, we would argue, was part of the problem. Writing off bad loans is part of the solution. For the record, the yuan itself rose to a new 20-year high against the dollar.
The chart below shows the drop in S&P 500 futures.