Business Maverick

Business Maverick

China weakness spoils risk rally; US futures climb: markets wrap

China weakness spoils risk rally; US futures climb: markets wrap
Unmarked gold bars at a gold and silver refinery operated by MMTC-PAMP India, in Nuh, India, on Wednesday, 31 August 2022. (Photo: Anindito Mukherjee/Bloomberg)

Weakness in Chinese assets marred an otherwise positive day for markets as US equity futures and stocks across much of Asia pushed higher on encouraging signs from debt-ceiling talks in Washington.

Hong Kong shares slid on Friday in a decline led by internet giants. The Hang Seng Tech Index slumped as much as 2.4% as Alibaba dropped in the wake of disappointing sales that add to signs of a faltering post-Covid rebound in China. 

Data this week showed activity in the world’s second-biggest economy is losing momentum, with private firms barely increasing investment and households cutting back on goods. The offshore yuan depreciated to levels not seen since late last year. Official fixing above 7 per dollar reflected a willingness among officials to keep the currency weak, potentially to spur domestic activity.

“The recovery in China is slowing down,” said Ashish Shah, chief investment officer, Goldman Sachs Asset Management, on Bloomberg Television. “We all expected it wouldn’t be a straight line — you will go through waves,” said Shah, adding that the central bank would “have to run a lot looser policies going forward”.

Elsewhere, shares in Australia, South Korea and Japan advanced. The gain for the Topix placed the index on course for its best week since November and a fresh 33-year high.

Contracts for the S&P 500 climbed after the index ended on Thursday at the highest level in nine months. Nasdaq 100 futures also rose after the tech-heavy gauge added nearly 2%.

Treasuries were flat in Asian trading after a Thursday selloff that signalled traders are shifting expectations for the Federal Reserve to keep rates higher for longer. An index of the dollar was little changed after advancing by the most in two months in the prior session.

“The moderation in inflation from 9% at its peak to 5% at the last print allows the Fed to take a pause,” Belita Ong of Dalton Investments, said in an interview with Bloomberg Television. “Especially when coupled with weakness that we’ve seen in the employment data as well as the bank failures that have apparently led to tightening credit conditions.”

Market pricing places around a 40% chance the Fed will raise rates at its June meeting following mixed commentary from central bank officials this week. Fed Bank of Dallas president Lorie Logan said on Thursday the case for a pause next month is not clear, contrasting with dovish remarks from central bank governor Philip Jefferson. 

The yen rose slightly after Japan’s inflation re-accelerated in April following months of cooling. That may keep alive speculation that the central bank will have to revise its price outlook after waning expectations for policy normalisation in the previous session. The currency on Thursday touched its weakest level this year against the dollar.

Oil rallied, tracking some of the risk-on sentiment, and headed for its first weekly advance in more than a month. Gold edged higher. BM/DM

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