Stocks fell in Asia and the dollar strengthened as risk appetite was dented by deflation risks in China and threats of a US recession.
(Bloomberg) — Stocks fell in Asia and the dollar strengthened as risk appetite was dented by deflation risks in China and threats of a US recession.
An Asia equity benchmark slipped for a fourth day, heading for the lowest close in more than a month. Shares in Hong Kong and mainland China pared gains after Chinese data showed further declines in factory-gate prices while core inflation slowed. The offshore yuan swung to a loss after the data.
Traders had initially focused on optimism that a crackdown by Beijing on Chinese tech companies was nearing an end, sending the Hang Seng Tech Index up as much as 3.2%, before trimming its advance.
“It is clear that China is facing excess supply now,” said Zhaopeng Xing, senior China strategist at Australia & New Zealand Banking Group Ltd. “Demand side policies will be in need,” with the focus now shifting to expectations of fiscal stimulus before China’s July Politburo meeting, he said.
European stock futures declined, while those for the US extended losses after most American equities dropped Friday when wage data showed inflation remained a threat. The S&P 500 fell 1.2% over the holiday-shortened week, while the Nasdaq 100 dropped 0.9%.
The dollar strengthened against all its Group-of-10 peers. The yen weakened 0.4%, while Japanese stocks were among the worst performers in the region. Treasury yields were little changed, with the two-year remaining below 5%, and the 10-year just above 4%.
Investors continue to face a host of competing forces, including the risk of higher interest rates and recession.
US Treasury Secretary Janet Yellen said on the weekend she wouldn’t rule out the threat of a US recession, noting that it was “appropriate and normal” for growth to moderate and that inflation remains too high.
“Everyone is looking at inflation or has been looking at inflation for a long time,” Nicolo Bocchin, global head of fixed income at Azimut Group, said on Bloomberg Television. “Now it’s time to look at growth.”
Treasury yields may reach around 4.5% on the long end of the curve in the next few quarters and it may move “a little lower on the short end of the curve, just because of a reassessment of growth probabilities,” Bocchin said.
Inflation Data
US jobs data last week have tamped down speculation the Federal Reserve would leave interest rates unchanged this month. The outlook beyond that is unclear. Payroll figures fell short of estimates but brought signs that wage inflation remains a threat to the Fed’s fight against price gains.
Traders will also be closely watching this week’s US consumer prices data. Bloomberg economists are expecting the headline number to fall to 3.1%, though they don’t see that stopping the Fed hiking at its meeting later this month.
Downside surprises in this week’s inflation indicators could charge up the bulls, taking the S&P 500 above the channel, according to Ed Yardeni, president of his namesake research firm. “On the other hand, higher-than-expected inflation readings could heighten fears that the Fed will have to tighten monetary policy to cause a recession as the only clear way to bring inflation down.”
Back in Asia, despite the current economic downturn, some investors still see China as a prospective market. Chinese authorities said on Friday they would wrap up a probe into Ant Group Co., with the financial technology company paying a fine of almost $1 billion, to suggest that a broader regulatory crackdown is ending.
Oil edged lower Monday after two consecutive weekly increases, and gold fell slightly.
Key events this week:
- US wholesale inventories, Monday
- Federal Reserve speakers include Mary Daly, Loretta Mester, Raphael Bostic and Michael Barr, Monday
- Bank of England Governor Andrew Bailey delivers speech, Monday
- St. Louis Fed President James Bullard speaks, Tuesday
- Canada rate decision, Wednesday
- US CPI, Wednesday
- Federal Reserve issues Beige Book, Wednesday
- Federal Reserve speakers include Neel Kashkari, Loretta Mester, Raphael Bostic, Wednesday
- Bank of England Governor Andrew Bailey speaks, Wednesday
- China trade, Thursday
- Eurozone industrial production, Thursday
- US initial jobless claims, PPI, Thursday
- US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.2% as of 6:34 a.m. London time. The S&P 500 fell 0.3% on Friday
- Nasdaq 100 futures fell 0.3%. The Nasdaq 100 fell 0.4%
- Japan’s Topix index fell 0.2%
- Hong Kong’s Hang Seng Index rose 0.5%
- China’s Shanghai Composite Index was little changed
- Australia’s S&P/ASX 200 Index fell 0.3%
- Euro Stoxx 50 futures fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.1% to $1.0953
- The Japanese yen fell 0.5% to 142.93 per dollar
- The offshore yuan fell 0.1% to 7.2430 per dollar
- The Australian dollar fell 0.4% to $0.6663
- The British pound fell 0.2% to $1.2808
Cryptocurrencies
- Bitcoin fell 0.2% to $30,132.44
- Ether fell 0.5% to $1,860.38
Bonds
- The yield on 10-year Treasuries advanced one basis point to 4.08%
- Japan’s 10-year yield advanced 1.5 basis points to 0.460%
- Australia’s 10-year yield advanced three basis points to 4.28%
Commodities
- West Texas Intermediate crude fell 0.6% to $73.39 a barrel
- Spot gold fell 0.2% to $1,921.29 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Abhishek Vishnoi and Ran Li.
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