(Bloomberg) — China’s worsening property slump dampened market sentiment as the nation’s equities extended a selloff. Treasury yields edged toward new highs.
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An Asian equity gauge was set for its lowest close since June as stocks fell across the region. Shares in mainland China declined while almost all of the 80 members of Hong Kong’s Hang Seng Index slipped. The CSI 300 Index, which is the benchmark of onshore Chinese shares, is now close to erasing all of the gains it made after the Politburo meeting last month amid signs of deterioration in the economy. Europe and US equity futures wiped out earlier gains to trade lower.
Treasury yields edged up toward levels last seen in November after producer prices in the US on Friday increased more than expected, threatening to help keep rates higher for longer. That also boosted the dollar.
Country Garden Holdings Co., once China’s largest private-sector developer by sales, is in the spotlight as the company is at risk of joining a slew of defaulters if it fails to make coupon payments on two dollar bonds within a 30-day grace period. Its shares dropped more than 19% in Hong Kong on Monday, after closing below HK$1 for the first time ever last week.
Investors at the moment are not pricing in the possibility that Chinese officials will come in with the necessary toolkit to improve the situation, according to Yan Wang, chief emerging-market and China strategist at Alpine Macro Inc.
“There’s plenty of pessimism,” he said on Bloomberg Television. “Some of the developers obviously are trading at very depressed levels. So the market is not pricing for that.”
Recent data shows China’s bank loans slid to a 14-year low, consumer and producer prices both declined, and exports slid the most since February 2020. Adding to the jitters is news that one of China’s largest largest private wealth managers missed payments on investment products sold to the nation’s high-net worth clients and corporations, stoking fears more defaults may happen in such products.
In currencies, the offshore yuan fell toward its weakest level this year as economic data continued to disappoint and is among Asia’s worst-performing currencies year-to-date.
The yen steadied after breaching its year-high level of 145.07 versus the dollar as investors started to monitor for any signs the government may intervene as it did last year.
“Overvalued”
The US trading session on Friday saw a slide in tech megacaps and mixed economic data left stocks weak and struggling for direction. In choppy trading, the S&P 500 closed at a one-month low with a drop of just 0.1%. The Nasdaq 100 notched its longest weekly losing streak this year, hovering around 15,000. Nvidia Corp. — which has more than tripled in 2023 — extended a four-day decline to 10%.
Bill Gross, the one-time bond king, said stock and Treasury bulls are wrong as both markets are “overvalued.” The former chief investment officer of Pacific Investment Management Co. told Bloomberg Television that the fair value of the 10-year Treasury yield is about 4.5%, compared with the current level of 4.15%.
Friday’s economic reports from the US also did little to alter swap market bets that the Federal Reserve will pause its rate hikes next month. Traders also continued to expect the central bank to signal its battle against inflation isn’t over yet.
Goldman Sachs Group Inc. economists, however, anticipate the Fed will start lowering interest rates by the end of next June, with a gradual, quarterly pace of reductions from that point.
Oil dropped amid a shift away from risk assets spurred by concerns about China. Gold steadied around the lowest level since early July.
Key events this week:
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China medium-term lending, retail sales, industrial production, fixed-asset investment, FX net settlement, Tuesday
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Japan industrial production, GDP, Tuesday
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UK jobless claims, unemployment, Tuesday
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US retail sales, empire manufacturing, business inventories, cross-border investment, Tuesday
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Reserve Bank of Australia policy minutes, Tuesday
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Federal Reserve Bank of Minneapolis President Neel Kashkari speaks, Tuesday
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China property prices, Wednesday
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Eurozone industrial production, GDP, Wednesday
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UK CPI, Wednesday
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US FOMC minutes, housing starts, industrial production, Wednesday
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US initial jobless claims, US Conf. Board leading index, Thursday
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Eurozone CPI, Friday
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Japan CPI, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures fell 0.2% as of 6:55 a.m. London time. The S&P 500 fell 0.1% Friday
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Nasdaq 100 futures fell 0.2%. The Nasdaq 100 fell 0.7%
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Japan’s Topix fell 0.9%
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Australia’s S&P/ASX 200 fell 0.8%
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Hong Kong’s Hang Seng fell 2.3%
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The Shanghai Composite fell 0.6%
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Euro Stoxx 50 futures fell 0.3%
Currencies
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The Bloomberg Dollar Spot Index rose 0.1%
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The euro fell 0.1% to $1.0936
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The Japanese yen was little changed at 144.88 per dollar
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The offshore yuan fell 0.2% to 7.2731 per dollar
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The Australian dollar fell 0.3% to $0.6476
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The British pound fell 0.1% to $1.2680
Cryptocurrencies
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Bitcoin was little changed at $29,402.89
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Ether fell 0.3% to $1,848.25
Bonds
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The yield on 10-year Treasuries advanced one basis point to 4.17%
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Japan’s 10-year yield advanced three basis points to 0.615%
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Australia’s 10-year yield advanced eight basis points to 4.19%
Commodities
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Brett Miller and Ruth Carson.
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