Chinese Stocks Drop, US Futures Decline on Google: Markets Wrap

(Bloomberg) — Chinese stocks fell on Wednesday as traders weighed weak economic data from the Golden Week holiday and questioned Beijing’s commitment to further stimulus measures.

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The benchmark CSI 300 index underperformed the region, falling as much as 7.4% before paring some of its losses after authorities announced a briefing on fiscal policy on Saturday. US and European stock futures also fell after a report stating that the US Department of Justice is considering dismantling Google. Ten-year Treasury yields hovered around the key 4% level and oil stabilized after falling the most in more than a year.

Concerns have been rising in China that the latest wave of stimulus may not be enough to convince investors of a sustained rise in the stock market. Chinese tourists spent less money during their extended vacation, while a news report suggested the country needed to implement policies to stabilize growth and outlook. This is another sign that Beijing is trying to build confidence among investors.

“For markets to maintain enthusiasm, it may be necessary to make more aggressive gestures toward the new fiscal package or market stabilization mechanism,” said Homin Lee, chief macro strategist at Lombard Odier. “It is possible that these fluctuations will continue until the meeting of the Standing Committee of the National People’s Congress, as well as the US elections in early November.”

The National Development and Reform Commission, China’s economic planning agency, announced that a trickle of spending worth 200 billion yuan ($28 billion) would be provided starting next year, after analysts estimated a financial package worth up to 3 trillion yuan was in the pipeline.

A growing number of strategists and fund managers in recent days have expressed doubts about the rally, saying Beijing needs to back up its spending pledges with real money. Some are also concerned that many stocks have already reached overvalued levels.

“No other policies from the NDRC yesterday have disappointed the market,” said Stephen Leung, CEO of UOB Kay Hian Hong Kong Ltd. “Volatility is likely to continue into the fourth quarter, but liquidity will return, wait for the pullback to jump in. In, especially from those offshore institutions that were severely underweight Greater China.

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In corporate news, Alimentation Couche-Tard Inc. To Seven & i Holdings Co. A new potential takeover price of JPY7 trillion (US$47.2 billion), indicating that the Canadian company is still seeking to enter into takeover talks after its initial offer was rejected. Shares of the Japanese company rose as much as 12%.

Elsewhere in Asia, New Zealand dollar yields and bond yields fell after the country’s central bank cut its benchmark interest rate by 50 basis points, while the Reserve Bank of India left interest rates unchanged. The Reserve Bank of India changed its monetary policy to neutral, sending stocks higher. South Korea will join the FTSE Russell benchmark bond index, capping months of official crackdowns and overhaul of financial market infrastructure.

Expectations of interest rate cuts in the United States

Treasuries were little changed in Asian trade after a series of sell-offs in the previous four sessions, which was amplified by last week’s US jobs data that weighed on expectations for interest rate cuts. With inflation data due later in the week, investors were analyzing Federal Reserve officials’ comments.

Boston Fed President Susan Collins noted that interest rate cuts should be cautious and data-driven. Her counterpart in Atlanta, Rafael Bostic, said that although inflation risks have decreased, threats to the labor market have risen, although the economy remains strong. Governor Adriana Kugler said officials should continue to focus on bringing inflation on target, through a “balanced approach” that avoids a slowdown in jobs.

“US data is not so strong that the Fed’s contribution to the global interest rate cutting cycle is about to end,” said Mark Haefele of UBS Global Wealth Management. “We therefore maintain our belief that investors will set lower interest rates.”

Main events this week:

• Fed Minutes, Wednesday

• The Fed’s Lori Logan, Raphael Bostic, Austin Goolsby and Mary Daly speak on Wednesday

• US Consumer Price Index, Initial Jobless Claims, Thursday

• The Fed’s John Williams and Thomas Barkin speak on Thursday

• JPMorgan and Wells Fargo kick off earnings season for Wall Street’s big banks on Friday

• US Producer Price Index, University of Michigan Consumer Confidence, Friday

• The Fed’s Lori Logan, Austin Goolsby and Michelle Bowman speak on Friday

Some key movements in the markets:

Stocks

• S&P 500 futures were down 0.2% as of 6:51 a.m. London time.

• Japan’s Topix index rose 0.4%.

• The Hang Seng Index in Hong Kong rose 0.7%.

• The Shanghai Composite Index fell by 3.5%.

• Euro Stoxx 50 futures were little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed

• There was little change in the euro at $1.0971

• The Japanese yen fell 0.2 percent to 148.52 yen to the dollar

• The yuan in external transactions rose 0.2 percent to 7.0601 per dollar

• There was little change in the Australian dollar at 0.6748 US dollars

Cryptocurrencies

• Bitcoin rose 0.2% to $62,462.73

• Ethereum rose 0.3% to $2,448.42

Bonds

• The yield on the 10-year Treasury note rose one basis point to 4.02%.

• The yield on 10-year Japanese bonds rose one basis point to 0.930%.

• The Australian 10-year bond yield rose three basis points to 4.19%.

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This story was produced with assistance from Bloomberg Automation.

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