Asian Stocks Swing as China Data Offset Fed Bets: Markets Wrap

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(Bloomberg) — Asian stocks edged between gains and losses on Monday, as expectations of a rate cut by the U.S. Federal Reserve receded on signs of continued stagnation in China’s economy.

Hong Kong shares suffered the biggest losses, posting their biggest drop in a week, after a string of weak Chinese data on Saturday prompted traders to question whether authorities would launch a major stimulus to support the economy. Japan, South Korea and mainland China were closed for a holiday, and Asian Treasury trading was also closed.

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The long-awaited U.S. monetary easing cycle takes center stage this week, as part of a 36-hour monetary odyssey that includes policy decisions in Brazil, South Africa, the United Kingdom and Japan. While traders weigh whether the Federal Reserve will cut interest rates by a quarter or half a percentage point, the Bank of Japan is expected to hold rates steady after shaking global financial markets with a hike at its last meeting.

The yen posted the biggest gain among major currencies, while the dollar fell after what the FBI described as an apparent assassination attempt against former President Donald Trump.

“There is a huge amount of concern surrounding the Fed’s easing cycle, particularly the pace at which it will ease policy,” Katrina Ell, director of economic research at Moody’s Analytics, told Bloomberg TV. After the BOJ’s shockwave through global markets last month, “the BOJ’s communications will be critical to letting market participants know exactly, and as clearly as possible, what the next steps are and the timing of those next steps.”

Given the closures, investors are likely to be cautious ahead of regional trade data and Bank Indonesia’s monetary policy decision just hours before the Fed meeting. Global funds have snapped up Southeast Asian assets as the prospect of lower interest rates and attractive valuations hold the promise of hefty returns.

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But that optimism contrasts with China, where industrial production, consumption and investment slowed more than expected in August, while the unemployment rate unexpectedly hit a six-month high. China’s central bank signaled late Friday that it would step up its fight against deflation and prepare more policies to revive the economy, after credit data showed private sector confidence remained weak.

Revived bets on a 50 basis point rate cut by the Federal Reserve sent Treasury yields lower for a second straight week, with the 2-year note closing at a two-year low on Friday. According to data compiled by Bloomberg, the rate cuts are expected to be priced in at around 110 basis points by the end of the year.

“We are in for a big week and the 25 or 50 basis point conundrum clearly needs to be resolved,” said Martin Whitton, head of financial markets strategy at Westpac Bank in Sydney. “At the very least, we should expect a cautious cut given the data set and the starting point for policy, and that should justify market pricing going forward.”

Main events this week:

• Speakers from the European Central Bank, including Vice President Luis de Guindos and Chief Economist Philip Lane, on Monday
• Manufacturing in the American Empire, Monday
• Singapore Trade Tuesday
• The Federal Reserve begins its two-day meeting on Tuesday.
• US business inventories, industrial production, retail sales on Tuesday
• Canada Consumer Price Index, Tuesday
• Indonesia Interest Rate Decision, Wednesday
• South Africa Retail Sales, CPI, Wednesday
• UK CPI, Wednesday
• Eurozone CPI, Wednesday
• US interest rate decision Wednesday
• Brazil interest rate decision, Wednesday
• Unemployment in Australia Thursday
• New Zealand GDP, Thursday
• Taiwan Interest Rate Decision, Thursday
• Norway interest rate decision, Thursday
• UK interest rate decision, Thursday
• South Africa Interest Rate Decision, Thursday
• China’s key lending rates, Friday
• Japan CPI and Interest Rate Decision Friday
• European Central Bank President Christine Lagarde speaks on Friday
• Bank of Canada Governor Tiff Macklem speaks Friday

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Some key movements in the markets:

Stocks

• S&P 500 futures were little changed as of 11:04 a.m. in Tokyo.
• Nikkei 225 (OSE) futures fell 0.3%.
• Australia’s S&P/ASX 200 rose 0.4%
• Hong Kong’s Hang Seng Index fell 0.3%.
• Euro Stoxx 50 futures rose 0.1%

Currencies

• The Bloomberg Dollar Index fell 0.1%.
• The euro rose 0.1% to $1.1089.
• The Japanese yen rose 0.2% to 140.51 yen per dollar.
• The offshore yuan was little changed at 7.0996 against the dollar.
• The Australian dollar was little changed at $0.6707.

Cryptocurrencies

• Bitcoin fell 2.2% to $58,515.84
• Ether price fell 3.7% to $2,275.48

Bonds

• The yield on the 10-year Australian bond fell by one basis point to 3.81%.

Goods

• West Texas Intermediate crude rose 0.5 percent to $68.97 a barrel.
• Spot gold rose 0.2 percent to $2,582.32 an ounce.

This story was produced with the help of Bloomberg Automation.

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