Asian stocks fell along with Treasuries as investors digested further signs of weakness in China and the prospect of higher US interest rates.
(Bloomberg) — Asian stocks fell along with Treasuries as investors digested further signs of weakness in China and the prospect of higher US interest rates.
Shares in Japan, Australia and South Korea all retreated, while Chinese stocks pared early declines. A region-wide equity gauge slipped to levels last seen in March, putting it on pace for its biggest two-day drop since October.
Hong Kong’s Hang Seng Index pared a decline that had propelled it toward a bear market. A gauge of tech shares in the financial hub reversed an early loss, helped by gains in Li Auto Inc and Tencent Holdings Ltd. as investors looked past the latter’s disappointing revenue figures.
Elsewhere, concerns over China persisted. The country’s real estate slump may be worse than official data suggest. One of China’s biggest shadow banks is said to be planning to restructure its debt and has hired KPMG LLP to conduct an audit of its balance sheet. A unit of China Evergrande Group said the Chinese securities regulator has built a case against it relating to suspected information disclosure violations.
The cluster of worries come as China’s central bank moved to boost fragile sentiment with a stronger-than-expected reference rate for the yuan and the largest injection of short-term cash to the financial system since February on Wednesday. So far the steps have failed to restore optimism, with the US Treasury warning about the consequences for the global economy.
“The market is definitely reacting to a lot of the bad news,” Vanessa Chan, head of Asian fixed income investment directing for Fidelity Investment Management HK Ltd, told Bloomberg Television. “Not just on the Country Garden situation but also to some extent the macro data and the headlines.”
China ramped up its efforts to stem losses in the yuan Thursday by offering the most forceful guidance since October through its daily reference rate for the managed currency. The offshore yuan slipped against the greenback. The Bloomberg dollar index firmed as Treasury yields climbed across the curve.
The 10-year Treasury yield touched levels last reached in October, extending the selling pressure seen Wednesday, while the rate on policy-sensitive two-year notes approached 5%. The selling erased gains for the year for an index of US government debt.
The dollar’s strength came on the heels of minutes from the Fed’s July meeting that fanned concerns the central bank would continue to raise interest rates to quell inflation. It’s feeding into this month’s dominant playbook, where investors are selling Treasuries and emerging markets on the expectations that policy rates will stay higher for longer.
Elsewhere, the Australian dollar weakened after data showed the nation’s unemployment rate rose more than expected in July. The pound steadied after a Wednesday rally following higher-than-anticipated UK inflation data.
Australian and New Zealand yields climbed by around 10 basis points. The rise pushed the Australian 10-year yield to 4.31%, a level last reached in early 2014.
Japan’s 20-year bond yield surged after an auction of debt with the maturity drew tepid investor demand. The yen traded around its 2023 low — near levels that previously triggered Japan’s intervention in September.
Futures contracts for the S&P 500 and Nasdaq 100 were little changed after Wednesday losses for the underlying benchmarks, as declines for Meta Platforms Inc, Amazon.com Inc. and Tesla Inc weighed on indexes.
“The Fed has no choice but to keep it up until they are convinced that inflationary expectations are quashed,” Steve Sosnick, chief strategist at Interactive Brokers, said after the minutes were released. “Doing otherwise risks some of the embers reigniting. Even though two governors favored keeping rates steady in July, it is important to keep in mind that a pause is not a pivot.”
Corporate Highlights:
- London-listed BAE Systems Plc is in talks on a possible acquisition of Ball Corp.’s aerospace division, people with knowledge of the matter said.
- Intel Corp.’s $5.4 billion deal with Israel’s Tower Semiconductor Ltd. collapses after failing to win Chinese regulatory approval in time.
- Energy Transfer LP will buy Crestwood Equity Partners LP in a $7.1 billion all-equity deal allowing Energy Transfer to expand its US pipeline network.
- Target Corp. climbs after a surprising profit surge in the second quarter overshadows the company’s increasingly cautious outlook on the rest of the year.
Key events this week
- 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 were little changed as of 1:06 p.m. Tokyo time. The S&P 500 fell 0.8%
- Nasdaq 100 futures were little changed. The Nasdaq 100 fell 1.1%
- Japan’s Topix fell 0.4%
- Australia’s S&P/ASX 200 fell 0.5%
- Hong Kong’s Hang Seng fell 0.1%
- The Shanghai Composite was little changed
- Euro Stoxx 50 futures fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.1% to $1.0864
- The Japanese yen was little changed at 146.43 per dollar
- The offshore yuan was little changed at 7.3420 per dollar
Cryptocurrencies
- Bitcoin fell 1.1% to $28,633
- Ether fell 0.6% to $1,796.53
Bonds
- The yield on 10-year Treasuries advanced four basis points to 4.29%
- Japan’s 10-year yield advanced 3.5 basis points to 0.655%
- Australia’s 10-year yield advanced nine basis points to 4.29%
Commodities
- West Texas Intermediate crude was little changed
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
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