Stock Rally Loses Its Shine as China Shares Plunge: Markets Wrap

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Bloomberg — A slump in Chinese stocks took the shine off a rally in equities in other major Asia markets Monday while Treasury yields slipped from multiyear highs.

Hong Kong’s benchmark share index dropped more than 4% as investors contended with the delayed release of China’s economic growth data and the conclusion of the party congress in Beijing, which saw Xi Jinping tighten his grip on power.

Equities were higher in Japan, South Korea and Australia while US futures advanced after stocks on Wall Street had their best week since June.

Trading in major currencies was choppy, with the yen swinging between gains and losses amid signs of a second intervention from Japanese authorities in two sessions. Volatility is set to continue, with the government’s efforts to curb rapid depreciation running counter to the Bank of Japan’s ultra-loose monetary policy.

The pound lost most of an earlier spike higher that came as Boris Johnson pulled out of the race to lead the UK’s ruling Conservative Party, putting Rishi Sunak closer to becoming the next prime minister.

More broadly across markets, investors are looking beyond the present state of aggressive monetary tightening by the Federal Reserve to the next phase, which may see a slowing or pause in interest-rate hikes.

That’s providing support amid headwinds from the war in Ukraine to risks from China. The outcome Sunday of the party congress in Beijing suggests Xi’s Covid-zero campaign will continue to slow the economy and has also fueled speculation that his “common prosperity” goal may even lead to property and inheritance taxes.

The offshore yuan weakened to approach a record low seen last week. The People’s Bank of China set the yuan fixing at 7.1230 per dollar, away from the recent pattern of near 7.11 per dollar

The S&P 500 jumped 2.4% Friday amid an increase in appetite for bullish US equity wagers following an equity rout that’s already erased $13 trillion in market value this year.

Ten-year Treasury yields reversed an earlier surge Friday, closing down by one basis point at 4.22%. Yields opened lower in Australia on Monday, led by the policy-sensitive three-year maturity.

St. Louis Fed President James Bullard and his San Francisco counterpart Mary Daly made clear they expect the discussion at the November gathering to include debate on how high to raise rates and when to slow the pace of increases. They stressed the need to keep tightening for now.

Key events this week:

Earnings due this week include: Apple, Microsoft, Exxon Mobil, Ford Motor, Credit Suisse, Airbus, Alphabet, Amazon, Bank of China, Boeing, Caterpillar, Cnooc, Coca-Cola, HSBC, Intel, McDonald’s, Mercedes-Benz, Merck, Samsung Electronics, Shell, UBS, UPS, Vale, Visa, Volkswagen
PMIs for Eurozone, US, Monday
US Conference Board consumer confidence, Tuesday
Bank of Canada rate decision, Wednesday
China industrial profits, Thursday
ECB rate decision, Thursday
US GDP, durable goods orders, initial jobless claims, Thursday
Bank of Japan policy decision, Friday
US personal income, personal spending, pending home sales, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.9% as of 8:52 a.m. Tokyo time. The S&P 500 rose 2.4% Friday
Nasdaq 100 futures rose 1.1%. The Nasdaq 100 rose 2.4%
Australia’s S&P/ASX 200 Index rose 2.1%
Nikkei 225 futures 0.9%
Hang Seng Index futures 1.2%

Currencies

The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $0.9865
The Japanese yen was little changed at 147.70 per dollar
The offshore yuan fell 0.5% to 7.2627 per dollar
The British pound rose 0.4% to $1.1343

Cryptocurrencies

Bitcoin rose 0.3% to $19,565.61
Ether rose 2.5% to $1,363.11

Bonds

The yield on 10-year Treasuries declined one basis point to 4.22% on Friday
Australia’s 10-year bond yield was steady at 4.20%

Commodities

West Texas Intermediate crude rose 0.5% to $85.51 a barrel
Spot gold rose 0.5% to $1,666.76 an ounce