Stocks and bonds rose in choppy trading as the potential for policy action by Chinese regulators to address mounting financial and real estate risks offered traders some reassurance.
(Bloomberg) — Stocks and bonds rose in choppy trading as the potential for policy action by Chinese regulators to address mounting financial and real estate risks offered traders some reassurance.
The Stoxx 600 climbed as news from China helped stem fears of contagion to broader markets. The index had opened slightly lower, tracking declines in Asia. US equity futures advanced, with contracts on the Nasdaq 100 outperforming. Treasury yields stabilized near their highest level since November.
Investors sitting on record first-half gains are having to contend with central bankers warning they are in no rush to cut interest rates. At the same time, China faces a stuttering economic recovery and worsening property slump, while global stock market valuations are starting to look unjustifiably high.
“Higher yields, headwinds from valuations and China risks could spell more near-term selloff,” said Janet Mui, head of market analysis at RBC Brewin Dolphin.
Country Garden Holdings Co. is seeking to extend a maturing bond for the first time. The Chinese developer is at risk of joining a slew of defaulters if it fails to make coupon payments on two dollar bonds within a 30-day grace period. The development came as China’s banking regulator announced it would set up a task force to examine risks at Zhongzhi Enterprise Group Co., which missed payments on investment products sold to high-net worth clients and corporations.
“I suspect the risk of contagion beyond China is pretty low,” said Andrew Bell, chief executive officer at Witan Investment Trust. “But it is another reason for markets to be a little bit cautious over the summer.”
Focus later this week will be on minutes of the Federal Reserve’s latest policy meeting as traders seek clues on the central bank’s next move. Investors who’d bet on a pivot to easier policy this year are having to adjust their bets as officials signal they will keep interest rates higher for longer.
Systematic investors are near maximum long on equities, and short-covering has run its course, implying they’re more likely to turn sellers if volatility shoots up, Barclays Plc strategists said in a recent note.
“Equity markets have had quite a strong rally over the last two or three months on hopes that we’re about to see the peak in interest rates,” Bell said. “The market was traveling a little bit on fumes, and now we have to live through the good news before before you can jump another step higher.”
Shares in mainland China declined while almost all of the 80 members of Hong Kong’s Hang Seng Index slipped Monday. The CSI 300 Index, which is the benchmark of onshore Chinese shares, is now close to erasing all of the gains it made after the Politburo meeting last month amid signs of deterioration in the economy.
The yen steadied after breaching its year-high level of 145.07 versus the dollar as investors started to monitor for any signs the government may intervene as it did last year.
The ruble weakened beyond the psychologically important level of 100 to the dollar for the first time since March last year, as Russia’s war in Ukraine drags on and international sanctions throttle the economy.
Argentine dollar bonds fell sharply on Monday after a populist who vowed to burn down the central bank won surprisingly strong support in a primary vote.
Argentina’s Dollar Bonds Plunge on Populist’s Election Upset
Corporate Highlights:
- US Steel Corp. jumped as much as 26% after the company rejected a takeover offer from peer Cleveland-Cliffs Inc. and said it will instead start a review of its strategic options.
- Tesla Inc. slipped 1.6%, triggering a selloff for other producers of electric vehicles, after it rolled out a new round of price cuts in China.
- Shares in Koninklijke Philips NV jumped by the most since April after the Agnelli family’s Exor NV bought a minority stake in a vote of confidence for the troubled Dutch medical company.
Key events this week:
- China medium-term lending, retail sales, industrial production, fixed-asset investment, FX net settlement, Tuesday
- Japan industrial production, GDP, Tuesday
- UK jobless claims, unemployment, Tuesday
- US retail sales, empire manufacturing, business inventories, cross-border investment, Tuesday
- Reserve Bank of Australia policy minutes, Tuesday
- Federal Reserve Bank of Minneapolis President Neel Kashkari speaks, Tuesday
- China property prices, Wednesday
- Eurozone industrial production, GDP, Wednesday
- UK CPI, Wednesday
- US FOMC minutes, housing starts, industrial production, Wednesday
- US initial jobless claims, US Conf. Board leading index, Thursday
- Eurozone CPI, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.3% as of 7:09 a.m. New York time
- Nasdaq 100 futures rose 0.4%
- Futures on the Dow Jones Industrial Average rose 0.2%
- The Stoxx Europe 600 rose 0.2%
- The MSCI World index fell 0.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0943
- The British pound was little changed at $1.2697
- The Japanese yen was little changed at 145.04 per dollar
Cryptocurrencies
- Bitcoin was little changed at $29,385.31
- Ether fell 0.3% to $1,847.21
Bonds
- The yield on 10-year Treasuries was little changed at 4.15%
- Germany’s 10-year yield declined one basis point to 2.61%
- Britain’s 10-year yield was little changed at 4.52%
Commodities
- West Texas Intermediate crude fell 0.3% to $82.94 a barrel
- Gold futures were little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Tassia Sipahutar, Krystof Chamonikolas, Denitsa Tsekova and Michael Msika.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.