Most Asian stocks dropped as investors focused on patches of weakness in China’s economic data even as the overall picture was solid. The possibility of further Federal Reserve policy tightening also weighed on sentiment.
(Bloomberg) — Most Asian stocks dropped as investors focused on patches of weakness in China’s economic data even as the overall picture was solid. The possibility of further Federal Reserve policy tightening also weighed on sentiment.
Shares in mainland China eked out tiny gains, while benchmarks in Hong Kong, South Korea and Australia all declined. China’s economy grew at a faster pace last quarter than economists forecast as consumers ramped up spending, but the recovery was uneven with industrial activity relatively subdued.
Futures for European contracts pointed to gains, while US equity contracts were little changed.
The yuan strengthened following the China data before giving back part of its gains as caution resurfaced. The dollar weakened against all its Group-of-10 peers, snapping a two-day rally. Government bonds fell in Australia and New Zealand after Treasuries dropped on Monday.
Most of the major China “numbers beat estimates, especially GDP and retail sales but property investment is still lagging and misses expectations,” said Willer Chen, senior analyst at Forsyth Barr Asia Ltd. in Hong Kong. That “echoes with broader concerns that the property market rebound could be a short-lived one as investments are not picking up,” he said.
Treasuries were little changed in Asia, with the two-year yield holding just below 4.2%. Richmond Fed President Thomas Barkin said he wants to see more evidence that US inflation is easing back to the central bank’s goal of 2%. New York state manufacturing activity unexpectedly expanded in April for the first time in five months as new orders and shipments snapped back.
The possibility of further Fed policy tightening had pushed up Treasury yields and constrained US stocks on Monday, with the S&P 500 erasing losses in afternoon trading and the tech-heavy Nasdaq 100 underperforming major equity benchmarks.
Australia’s dollar rose after minutes of the central bank’s April meeting showed members discussed a quarter-point hike before deciding on a pause. Meanwhile, Indonesian policymakers are expected to keep their benchmark unchanged later Tuesday.
A gauge of cross-asset volatility remained at 14-month low, reflecting a growing assurance that the worst of the banking turmoil and US rate hikes may be over. The VIX Index, another volatility measure, remained below 17, its lowest since the start of last year.
Still, US bank earnings on Monday didn’t entirely relieve investor nervousness that the sector can quickly bounce from turmoil that roiled several lenders earlier this year, as a so-called earnings recession in the world’s biggest economy looms.
“The risk-reward for equities does not look attractive into the second half in light of risk-free hurdle rate at 5%,” JPMorgan Chase & Co. strategists including Marko Kolanovic wrote in a note. “The main disconnect revolves around the hopes of a soft landing with inflation coming down quickly.”
Elsewhere, oil rose on growth data from China and gold ticked higher.
Key events this week:
- US housing starts, Tuesday
- Goldman Sachs and Bank of America release first-quarter earnings, Tuesday
- Fed’s Michelle Bowman discusses digital currency, Tuesday
- Eurozone CPI, Wednesday
- Fed releases Beige Book, Wednesday
- Fed’s John Williams gives a speech, Wednesday
- Fed’s Austan Goolsbee is interviewed on NPR, Wednesday
- China loan prime rates, Thursday
- Eurozone consumer confidence, Thursday
- US initial jobless claims, existing home sales, index of leading economic indicators, Thursday
- ECB issues report on March policy meeting, Thursday
- Fed’s Christopher Waller speaks at cryptocurrency-focused event, Thursday
- Fed’s Patrick Harker speaks on “monetary policy and housing”, Thursday
- Fed’s Loretta Mester discusses the economic and policy outlook, Thursday
- Fed’s Raphael Bostic discusses regional and national economic conditions, Thursday
- Fed’s Michelle Bowman and Lorie Logan speak at event, Thursday
- PMIs for Eurozone, Friday
- Japan CPI, Friday
- Fed’s Lisa Cook discusses economic research at an event, Friday
Some of the main moves in the market:
Stocks
- S&P 500 futures were little changed as of 6:30 a.m. London time. The S&P 500 rose 0.3%
- Nasdaq 100 futures fell 0.1%. The Nasdaq 100 was little changed
- Euro Stoxx 50 futures rose 0.2%
- Japan’s Topix index rose 0.6%
- Hong Kong’s Hang Seng Index fell 0.7%
- China’s Shanghai Composite Index was little changed
- Australia’s S&P/ASX 200 Index fell 0.5%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.1% to $1.0938
- The Japanese yen was little changed at 134.39 per dollar
- The offshore yuan was little changed at 6.8775 per dollar
- The Australian dollar rose 0.3% to $0.6722
- The British pound was little changed at $1.2386
Cryptocurrencies
- Bitcoin rose 0.4% to $29,564.12
- Ether rose 0.5% to $2,087.6
Bonds
- The yield on 10-year Treasuries declined one basis point to 3.59%
- Japan’s 10-year yield declined one basis point to 0.47%
- Australia’s 10-year yield advanced 10 basis points to 3.47%
Commodities
- West Texas Intermediate crude rose 0.3% to $81.10 a barrel
- Spot gold rose 0.2% to $1,999.17 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott and John Cheng.
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