Categories: Business

Stocks Decline as China Data Saps Risk Sentiment: Markets Wrap

(Bloomberg) — Futures for U.S. and European benchmarks fell along with Asian stocks Wednesday as growth in China’s services industry slowed, dampening appetite for equities.

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A gauge of dollar strength edged higher, while the yield on policy-sensitive two-year Treasuries drifted about two basis points lower to 4.92% as US bond trading continued after Independence Day. holidays.

Initial losses in Chinese equities deepened and the offshore yuan reversed an advance after the Caixin China services purchasing managers’ index was weaker than expected, underscoring concerns over a tepid recovery in the world’s second-largest economy.

The drop in the yuan was also unusual because it came despite the central bank earlier maintaining its support for the currency in its daily fix.

“This brings focus to the slow growth momentum and the recent step of geopolitical angst,” Charu Chanana, market strategist at Saxo Capital Markets, said in the data service China.

The fading optimism of the outlook for China has also prompted investors to lower their expectations for gains in Asian equities this year. A survey of 17 strategists and fund managers by Bloomberg News showed that MSCI Inc.’s Asia-Pacific Index could rise only about 5% by the end of the year from Tuesday’s closing level.

The Asia-wide gauge fell more than 0.5% Wednesday as shares also fell in Japan, South Korea and Australia. Futures for the S&P 500 fell 0.1% while those for the Euro Stoxx 50 lost 0.3%.

Traders will also monitor the services of purchasing managers’ index data for the euro area Wednesday, and later the minutes of the latest policy meeting of the Federal Reserve, which confused Wall Street.

The yen was trading on the stronger side at the 145 level against the greenback after a bout of weakness that caused trouble for lawmakers in Tokyo. The Australian dollar, which is sensitive to China’s outlook, fell after the release of PMI data.

Elsewhere, oil weakened after Tuesday’s rally on Saudi Arabian and Russian output cuts. Traders are waiting for a potentially critical comment from the Saudi energy minister. Gold is little changed.

After US stocks rallied in the first half of the year, investors are now concerned that higher rates and a worsening economic backdrop will limit gains from here. Among notes of caution, strategists at Goldman Sachs Group Inc. wrote that it is too early to rule out the risk of higher interest rates weighing on stocks.

Not everyone is as sad.

“As we approach a slowdown, we want to be a more conservative, higher quality tilt,” Tai Hui, chief market strategist for Asia Pacific at JPMorgan Asset Management, said on Bloomberg Television. “But once the economy, all the bad news goes away, that’s where I think equity will really shine.”

Looking ahead, the US nonfarm payrolls report on Friday will be an important event for the markets offering additional clues on the trajectory of monetary policy.

Main events this week:

Eurozone S&P Global Eurozone service PMI, PPI, Wednesday
The International Seminar of OPEC, speakers including the oil ministers of OPEC +, began in Vienna, Wednesday
The FOMC issued the minutes of the June policy meeting on Wednesday
New York Fed President John Williams in a “fireside chat” at the meeting of the Central Bank Research Association at the New York Fed, Wednesday
First US jobless claims, trade, ISM services, job openings, Thursday
Dallas Fed President Lorie Logan addresses a panel on policy challenges for central banks at the CEBRA meeting, Thursday
US unemployment rate, nonfarm payrolls, Friday
Christine Lagarde of the ECB spoke at an event in France, Friday