Weakness in Chinese assets marred an otherwise positive day for markets as US and European equity futures rose with stocks across Asia on encouraging signs from debt-ceiling talks in Washington.
(Bloomberg) — Weakness in Chinese assets marred an otherwise positive day for markets as US and European equity futures rose with stocks across Asia on encouraging signs from debt-ceiling talks in Washington.
Gains for Euro Stoxx 50 contracts placed the region-wide benchmark on course for a third day of gains, which would mark its best run in five weeks. US futures advanced after the S&P 500 ended Thursday at the highest level in nine months while the Nasdaq 100 added nearly 2%.
Shares in Australia, South Korea and Japan climbed, with the Topix on course for its best week since November and a fresh 33-year high.
China was an outlier. Mainland and Hong Kong shares slid Friday, partly weighed down by internet giants. The Hang Seng Tech Index slumped as much as 2.4% as Alibaba Group Holding Ltd dropped in the wake of disappointing sales that add to signs of a faltering post-Covid rebound in China.
Data this week showed activity in the world’s second-biggest economy is losing momentum, with private firms barely increasing investment and households cutting back on goods. The offshore yuan depreciated to levels not seen since late last year. An official fixing above 7 per dollar reflected a willingness among officials to tolerate a weaker currency, potentially to spur domestic activity.
“The recovery in China is slowing down,” said Ashish Shah, chief investment officer, Goldman Sachs Asset Management, on Bloomberg Television. “We all expected it wouldn’t be a straight line — you will go through waves,” said Shah, adding that the central bank would “have to run a lot looser policies going forward.”
Treasuries were flat in Asian trading after a Thursday selloff that signaled traders are shifting expectations for the Federal Reserve to keep rates higher for longer. An index of the dollar was little changed after advancing by the most in two months in the prior session.
“The moderation in inflation from 9% at its peak to 5% at the last print allows the Fed to take a pause,” Belita Ong of Dalton Investments, said in an interview with Bloomberg Television. “Especially when coupled with weakness that we’ve seen in the employment data as well as the bank failures that have apparently led to tightening credit conditions.”
Market pricing places around a 40% chance the Fed will raise rates at its June meeting following mixed commentary from central bank officials this week. Fed Bank of Dallas President Lorie Logan said on Thursday the case for a pause next month is not clear, contrasting with dovish remarks from central bank Governor Philip Jefferson.
The yen rose slightly after Japan’s inflation re-accelerated in April following months of cooling. That may keep alive speculation that the central bank will have to revise its price outlook after waning expectations for policy normalization in the previous session. The currency on Thursday touched its weakest level this year against the dollar.
Oil rose, reflecting some of the risk-on sentiment, and headed for its first weekly advance in more than a month. Gold edged higher.
Debt-Ceiling Talks
House Speaker Kevin McCarthy and Senate Majority Leader Chuck Schumer are making plans for votes in the coming days on a bipartisan deal to avert a US debt default. Treasury Secretary Janet Yellen told top bank executives that a failure to raise the debt ceiling would be “catastrophic” for the financial system, reiterating that the matter should be addressed without delay.
Investors were also keeping a hawk-eye on the potential impact of rising equity trading volumes. About $1.7 trillion of derivatives contracts tied to stocks and indexes are scheduled to expire Friday, according to Goldman Sachs Group Inc. strategist John Marshall. This typically obliges traders to either roll over existing positions or start new ones, leading to a spike in trading and sudden price swings.
Key events this week:
- ECB President Christine Lagarde participates in panel at Brazil central bank conference, Friday
- New York Fed’s John Williams speaks at monetary policy research conference in Washington; Fed Chair Jerome Powell and former chair Ben Bernanke to take part in panel discussion, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.1% as of 6:41 a.m. London time. The S&P 500 rose 0.9%
- Nasdaq 100 futures rose 0.2%. The Nasdaq 100 rose 1.9%
- Japan’s Topix rose 0.2%
- Australia’s S&P/ASX 200 rose 0.6%
- Hong Kong’s Hang Seng fell 1.2%
- The Shanghai Composite fell 0.4%
- Euro Stoxx 50 futures rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0763
- The Japanese yen rose 0.2% to 138.42 per dollar
- The offshore yuan fell 0.2% to 7.0617 per dollar
- The Australian dollar rose 0.2% to $0.6634
- The British pound was little changed at $1.2397
Cryptocurrencies
- Bitcoin rose 0.6% to $26,888.36
- Ether rose 0.5% to $1,806.29
Bonds
- The yield on 10-year Treasuries declined one basis point to 3.64%
- Japan’s 10-year yield advanced two basis points to 0.40%
- Australia’s 10-year yield advanced 10 basis points to 3.59%
Commodities
- West Texas Intermediate crude rose 0.7% to $72.37 a barrel
- Spot gold rose 0.2% to $1,961.99 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rita Nazareth and Rob Verdonck.
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