Stocks Struggle as Fed Hopes Offset by China Data: Markets Wrap

(Bloomberg) — Asian stocks struggled for momentum on Monday, with expectations for a Federal Reserve interest rate cut tempered by signs of enduring slack in China’s economy.

Most Read from Bloomberg

Benchmarks in Taiwan and Australia edged higher, as did European equity futures. Hong Kong stocks fell the most in a week, after a string of poor Chinese data on Saturday left traders wondering if authorities will initiate forceful stimulus to buttress the economy. In India, shares in Bajaj Housing Finance Ltd.’s were due to trade following an initial public offering that was oversubscribed by more than 60 times.

The yen rose to its highest level since July 2023, while the dollar softened amid thin liquidity on Monday. Markets in Japan, South Korea and mainland China were closed for a holiday, and there was no trading of Treasuries in Asia.

The start of a long-anticipated US easing cycle takes center stage this week, part of a 36-hour monetary roller coaster that includes policy decisions in Brazil, South Africa the UK and Japan. While traders are mulling whether the Fed will go for a 25 or 50 basis-point cut, the Bank of Japan is expected to keep rates on hold after roiling global financial markets by an increase at its last meeting.

“There’s a huge amount of anxiety riding on the Fed’s easing cycle and particularly the pace at which their going to ease,” Katrina Ell, director of economic research Moody’s Analytics, told Bloomberg Television. After the BOJ-induced global market shakeup last month, “the communication from the BOJ will be critical to let market participants know exactly, as clear as they can be, what the next move and the particular timings of the next moves will be.”

A revival of wagers a 50 basis point rate cut by the Fed, prompted Treasury yields to fall a second straight, week with two-year notes closing at a two-year low on Friday. About 110 basis points of rate cuts priced by year-end, according to data compiled by Bloomberg.

Given the closures, investors will likely be cautious ahead of regional trade data and Bank Indonesia’s policy decision just hours before the Fed. Global funds have been snapping up Southeast Asian assets as the prospect of interest-rate cuts and attractive valuations holds out the promise of supersized returns.

Story continues

That optimism stands in contrast to China, where factory output, consumption and investment all slowed more than forecast for August, while the jobless rate unexpectedly hit a six-month high. The People’s Bank of China signaled late Friday it would step up its fight against deflation and prepare more policies to revive the economy, after credit data showed private confidence remained weak.

“The recent Chinese economic data paints a grim picture,” said Manish Bhargava, chief executive officer at Straits Investment Management. “While an aggressive stimulus from the PBOC could offer a short-term lift, past measures have been incremental, raising doubts about the potential scale and effectiveness of future interventions.”

In commodities, gold rose to a record high as markets waited for the Fed easing. Elsewhere, oil steadied after its first weekly gain in a month as a drop in Libyan exports was offset by China’s economic woes.

Key events this week:

• ECB speakers including Vice President Luis de Guindos and chief economist Philip Lane, Monday

• US empire manufacturing, Monday

• Singapore trade, Tuesday

• Federal Reserve begins two-day meeting, Tuesday

• US business inventories, industrial production, retail sales, Tuesday

• Canada CPI, Tuesday

• Indonesia rate decision, Wednesday

• South Africa retail sales, CPI, Wednesday

• UK CPI, Wednesday

• Eurozone CPI, Wednesday

• US rate decision, Wednesday

• Brazil rate decision, Wednesday

• Australia unemployment, Thursday

• New Zealand GDP, Thursday

• Taiwan rate decision, Thursday

• Norway rate decision, Thursday

• UK rate decision, Thursday

• South Africa rate decision, Thursday

• China loan prime rates, Friday

• Japan CPI, interest rate decision, Friday

• ECB President Christine Lagarde speaks, Friday

• Bank of Canada Governor Tiff Macklem speaks, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 12:47 p.m. Tokyo time

• Nikkei 225 futures (OSE) fell 0.3%

• Australia’s S&P/ASX 200 rose 0.4%

• Hong Kong’s Hang Seng fell 0.3%

• Euro Stoxx 50 futures rose 0.2%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro rose 0.2% to $1.1102

• The Japanese yen rose 0.5% to 140.12 per dollar

• The offshore yuan was little changed at 7.0996 per dollar

• The Australian dollar rose 0.3% to $0.6724

Cryptocurrencies

• Bitcoin fell 2.2% to $58,501.69

• Ether fell 3.7% to $2,275.2

Bonds

Commodities

• West Texas Intermediate crude rose 0.2% to $68.82 a barrel

• Spot gold rose 0.3% to $2,585.66 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Matthew Burgess.

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.