Stocks in Asia retreated as China’s sluggish economic recovery triggered growth forecast cuts and a warning from US Treasury Secretary Janet Yellen that it could cause ripple effects across the global economy.
(Bloomberg) — Stocks in Asia retreated as China’s sluggish economic recovery triggered growth forecast cuts and a warning from US Treasury Secretary Janet Yellen that it could cause ripple effects across the global economy.
Shares in Hong Kong were the worst performers in the region, dragging an Asia equity gauge toward the lowest close in almost a week. Chinese stocks were little changed following the announcement of several measures by the government to prop up household consumption, including encouraging financial institutions to provide reasonable loan rates.
European equity futures pointed to small gains, while those for the US were little changed. American futures had earlier slipped on news that banks in the country will face stiffer mortgage capital rules than those set by the global standard.
China’s disappointing economic figures released Monday prompted economists at several major banks to downgrade outlooks. JPMorgan Chase & Co., Morgan Stanley and Citigroup Inc. cut their growth projections for this year to 5%, putting Beijing’s official gross domestic product target of the same figure at risk.
Investors also continue to call for Beijing to inject further stimulus into its flagging economy.
For European investors, the impact from the slowdown may be more pronounced, according to Charles-Henry Monchau, chief investment officer at Banque Syz & Co.
“Europe and European equities are quite sensitive to what is happening in China,” he said on Bloomberg Television, adding that luxury stocks have been under pressure amid slower-than-expected Chinese growth. “If China continues to disappoint, the market which is going to pay the price is probably going to be Europe instead of the US.”
Meanwhile, Yellen said in a Bloomberg Television interview that “many countries do depend on strong Chinese growth to promote growth in their own economies, particularly countries in Asia, and slow growth in China can have some negative spillovers for the United States.”
Still, Yellen said that while US growth has slowed, the labor market looked quite strong and she didn’t expect a recession to hit the world’s biggest economy. The nation is on a “good path” to bringing down inflation without a major weakening in the jobs picture, she said.
Treasuries steadied in Asian hours after the yields fell across the curve on Monday on speculation that the Federal Reserve is nearing the end of its monetary-tightening cycle. The dollar was slightly weaker against major peers.
As the Fed nears the endpoint for the cycle, investors will become increasingly comfortable adding duration exposure, according to BMO Capital Markets strategist Ian Lyngen. “In the very near-term, the trajectory of rates will be a sideways shuffle until the Chair’s press conference ends the hawkish versus dovish hike debate,” he wrote in a note.
In the US, the next pressure point for markets will be earnings, with hundreds of companies reporting over the next few weeks. S&P 500 firms are expected to post a 9% drop in profits in the second quarter, making it the worst season since 2020, according to data compiled by Bloomberg Intelligence. In Europe, it may be even worse, with a projected 12% slump.
Elsewhere, oil halted a two-day loss as concerns over the state of China’s economy were offset by Russia’s plans to cut crude exports. Gold edged higher.
Key events this week:
- US retail sales, industrial production, business inventories, cross-border investment, Tuesday
- Eurozone, UK CPI, Wednesday
- US housing starts, Wednesday
- China loan prime rates, Thursday
- US initial jobless claims, existing home sales, Conf. Board leading index, Thursday
- Japan CPI, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 6:37 a.m. London time. The S&P 500 rose 0.4%
- Nasdaq 100 futures fell 0.1%. The Nasdaq 100 rose 0.9%
- Japan’s Topix rose 0.4%
- Australia’s S&P/ASX 200 fell 0.3%
- Hong Kong’s Hang Seng fell 1.9%
- The Shanghai Composite fell 0.2%
- Euro Stoxx 50 futures rose 0.1%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro rose 0.2% to $1.1260
- The Japanese yen rose 0.3% to 138.36 per dollar
- The offshore yuan was little changed at 7.1756 per dollar
- The Australian dollar rose 0.2% to $0.6830
- The British pound rose 0.2% to $1.3097
Cryptocurrencies
- Bitcoin rose 0.5% to $30,076
- Ether rose 0.8% to $1,904.68
Bonds
- The yield on 10-year Treasuries declined two basis points to 3.79%
- Japan’s 10-year yield was declined 0.5 basis point to 0.470%
- Australia’s 10-year yield declined one basis point to 3.98%
Commodities
- West Texas Intermediate crude rose 0.4% to $74.45 a barrel
- Spot gold rose 0.3% to $1,960.73 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott.
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