| Ant Group's monster IPO boosts Chinese brokerages. Asia stocks set to drop after S&P 500 tumbles. And Pelosi and Mnuchin fail again to reach a deal. Asian stocks looked poised to open weaker Tuesday after U.S. shares tumbled on concern over rising coronavirus cases and stuttering stimulus talks. The S&P 500 Index had its biggest loss in a month. Treasuries advanced. Futures pointed lower in Japan and Australia. Ongoing fiscal spending talks in Washington continued to weigh on sentiment as prospects dimmed for fiscal aid before the presidential election. The dollar strengthened and 10-year Treasury yields slid toward 0.8%. Oil and copper declined, while gold was little changed. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin on Monday failed again to close major differences on a fresh stimulus for a U.S. economy facing a renewed surge in Covid-19 cases. In their first call since last Wednesday, the two main negotiators still had not resolved language for a national virus test-and-trace program. Pelosi and Mnuchin spoke for 52 minutes, and she remains "optimistic" about reaching a deal before Election Day, her spokesman Drew Hammill said. But with just eight days left and the Senate scheduled to leave town later Monday, the lack of an imminent agreement largely extinguished prospects of any legislation being written, voted on, and signed into law by Nov. 3. Ant Group is set to raise about $34.5 billion through initial public offerings in Shanghai and Hong Kong, a blockbuster listing that will rank as the biggest IPO ever. The fintech giant will have a market value of at least $315 billion, based on filings Monday — about the same valuation as JPMorgan and four times larger than Goldman Sachs. All this leaves Jack Ma, who co-founded Alibaba with $60,000, poised to become the world's 11th richest person. And he's not the only beneficiary: Chinese brokerages are having a bumper year for equity dealmaking, with the fintech giant's IPO poised to boost their showing in the global ranking to the best in at least two decades. China International Capital Corp is leading the push and is set this year to vault above Goldman and Morgan Stanley. The U.S.-China relationship seems to be getting worse by the day. What does it mean for investors? According to 10 top money managers, most agreed the superpower clash has no end in sight whether Donald Trump wins or loses in November. But their ideas on how to position for continued U.S.-China turbulence run the gamut. Investment picks included Taiwanese tech companies, rate-sensitive real estate bets, and — for one hedge fund manager who sees growing risk of military conflict — a big weighting in cash. Read their picks and predictions here.
The U.S. State Department signaled its approval for a potential $2.4 billion sale of anti-ship missiles to Taiwan, a move certain to anger Beijing and raise tensions further between the U.S. and China days before the American election. The Trump administration said it has notified Congress that it backs the proposed sale of as many as 100 Harpoon Coastal Defense Systems built by Boeing, which include 400 land-based missiles. China said earlier that it would impose unspecified sanctions on Boeing's defense unit, Lockheed Martin and Raytheon Technologies after the U.S. approved $1.8 billion in arms sales to Taiwan last week. What We've Been ReadingThis is what's caught our eye over the past 24 hours: And finally, here's what Tracy's interested in todayBack in March, the Federal Reserve announced it would start buying corporate bonds in an effort to soothe investors' jangled nerves and fix market dislocations. By most accounts, the program has been an incredible success, even coming in significantly "under budget" (a rarity, one might argue, when it comes to public sector expenditure). The central bank said it could buy up to $750 billion in bonds but after seven months of operation, it's only purchased about $13 billion worth. At the same time, risk premiums on U.S. investment-grade corporate debt have come down significantly. In other words, just the promise of the Fed buying corporate debt has been enough to get spreads down. Investors have been buying the bonds safe in the knowledge that there is a central bank backstop, and companies have been rushing to issue new debt at low interest rates and term out their funding.  But as is so often the case when it comes to unconventional monetary policies, there are side effects. For a start, the Fed's buying of corporate bonds through exchange-traded funds has encouraged billions of dollars to flood into the products. At the same time, engineering low borrowing costs and encouraging companies to extend their maturities has increased the corporate credit market's sensitivity to interest rates, also known as duration risk. As analysts at JPMorgan Chase point out, the interest rate sensitivity of the investment-grade market has jumped 56% since March 23, and is now at a record high of $7 billion per basis point, meaning prices could shift by $7 billion for every one basis point move in yield. No one expects a sharp jump in interest rates any time soon, but the fact that the Fed has increased the market's sensitivity to interest rates while making bond ETFs even bigger means the central bank has sown the seeds of a potential future dislocation in its efforts to fix the current one. You can follow Tracy Alloway on Twitter at @tracyalloway. | 
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