Asian stocks fell 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.
Chinese stocks in Hong Kong fell more than 1% as trading resumed Tuesday following a storm-triggered cancellation on Monday. Shares on the mainland also declined, with property developers among the biggest losers on renewed concerns in the sector after China Evergrande Group reported hefty combined losses over two years. Adding to the negative sentiment was a warning of a funding shortfall by a key unit of Dalian Wanda Group.
Benchmark indexes also slipped in South Korea and Australia, while Japanese equities rose, partially supported by gains in electric vehicle supply chain firms after Tesla Inc.’s shares advanced and BYD Co. reported a threefold increase in first-half net profit.
Contracts for US stocks extended their losses on news that US banks will face stiffer mortgage capital rules than set by the global standard. The S&P 500 had gained 0.4% and the tech-heavy Nasdaq 100 had risen almost 1% on Monday, with Activision Blizzard Inc. advancing after Microsoft Corp. and British regulators held “productive” talks needed to clear the companies’ $69 billion tie-up.
The dollar was slightly weaker against major peers Tuesday and the offshore yuan was little changed.
Concern is growing in Asia after 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.
In the hours after the data release, which helped push stocks in Shanghai lower on Monday, calls mounted from investors for Beijing to inject real stimulus into its flagging economy.
“You’re gonna see some stimulus coming in, which means that the second quarter may have been more of the low, the third quarter a bit better,” Joyce Chang, global head of research at JPMorgan, said on Bloomberg Television. “But we’ve taken half a percent off of China’s growth and I think that the deflation risks are there.”
Yellen said in a Bloomberg TV 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.
Optimism is mounting in the US that the Federal Reserve is nearing the end of its monetary-tightening cycle as the inflation threat wanes. Treasuries steadied in Asian hours after the yields fell across the curve on Monday.
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.
“Running bulls could be tripped up by cracks in the economy and corporate earnings,” said Saira Malik, chief investment office of Nuveen. “Looking at S&P 500 corporate earnings as a gauge, analyst estimates continue to be revised lower for both the second quarter of 2023 and the full year.”
In commodities, 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 fell 0.1% as of 11:41 a.m. Tokyo time. The S&P 500 rose 0.4%
- Nasdaq 100 futures fell 0.2%. The Nasdaq 100 rose 0.9%
- Japan’s Topix rose 0.3%
- Australia’s S&P/ASX 200 fell 0.4%
- Hong Kong’s Hang Seng fell 1.7%
- The Shanghai Composite fell 0.6%
- Euro Stoxx 50 futures were little changed
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.1246
- The Japanese yen was little changed at 138.59 per dollar
- The offshore yuan was little changed at 7.1761 per dollar
- The Australian dollar was little changed at $0.6819
Cryptocurrencies
- Bitcoin rose 0.6% to $30,126.48
- Ether rose 1.1% to $1,910.27
Bonds
- The yield on 10-year Treasuries declined one basis point to 3.80%
- Japan’s 10-year yield was little changed at 0.470%
- Australia’s 10-year yield declined one basis point to 3.97%
Commodities
- West Texas Intermediate crude rose 0.2% to $74.32 a barrel
- Spot gold rose 0.2% to $1,958.06 an ounce
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Jason Scott.
