Business Maverick

Business Maverick

Stocks dragged lower by China’s factory weakness: markets wrap

Stocks dragged lower by China’s factory weakness: markets wrap
US President Joe Biden and Speaker of the House Kevin McCarthy talk at the Capitol following the Friends of Ireland Luncheon on Saint Patrick's Day March 17, 2023 in Washington, DC. (Photo: Drew Angerer/Getty Images North America)

Asian stocks fell along with US and European futures on Wednesday as weakness in Chinese manufacturing dented sentiment that was already hurt by the risk of a US debt default.

Losses in Asian shares benchmarks accelerated after China reported the softest reading in its purchasing managers’ index since December. Hong Kong’s Hang Seng Index fell more than 2%, taking its retreat from a January high to 20%. South Korea’s Kospi gauge erased gains that earlier had it on course to enter a bull market.

Contracts for the S&P 500 and Euro Stoxx 50 dropped on the release of the Chinese data, which underscored concern over the strength of the recovery in the world’s second-largest economy.  

The yuan continued its recent decline, depreciating to the weakest level versus the dollar in six months. The Australian and New Zealand currencies, which are sensitive to China’s outlook given their links to commodities trading, also slid.

Oil held its biggest decline in four weeks, partly on signs of softer demand from economies including China, and amid sufficient supply ahead of an upcoming OPEC+ meeting.

In Tuesday’s trading in the US, the Nasdaq 100 added 0.4% to extend this year’s surge to 31%. Yet it ended off its high for the day as investors assessed the artificial-intelligence hype that’s boosted the index. Nvidia Corp hovered near $1-trillion in value after announcing several AI-related products. 

AI-related software providers now stand to reap the benefits that Nvidia has laid, according to Cathie Wood, CEO and founder of Ark Investment Management. “For every dollar of hardware that Nvidia sells, software providers, SaaS providers will generate eight dollars in revenue,” she said on Bloomberg Television.

Elsewhere in currency markets, a gauge of the dollar edged higher as the greenback rose versus most of its G10 currency counterparts.

The yen was steady after gains on Tuesday that were spurred by Japan’s top currency official warning that Tokyo would take necessary action to support the yen. Data on Wednesday showed Japan’s industrial output contracted in April for the first time in three months while retail sales fell for the first time in five months, a potential drag on the nation’s markets.  

Treasuries were little changed after yields fell on Tuesday from the highest levels since March that reflected hopes the Congress will pass the debt deal. Treasury rates on 3- to 10-year maturities led the move on Tuesday. 

The two-year yield, more sensitive than longer maturities to the outlook for Federal Reserve policy, traded around 4.44% on Wednesday. Yields on benchmark 10-year government bonds in Australia and New Zealand fell about five basis points.

Investors also remain focused on the debt-limit deal forged by President Joe Biden and House Speaker Kevin McCarthy. McCarthy dismissed threats from Republican hard-liners to oust him over and expressed confidence that lawmakers will pass legislation in time to avert a US default.

The bill is heading for a House vote on Wednesday evening. Passage there is critical to getting approval in the Senate — where there’s also GOP resistance — by the Monday deadline.

Meanwhile, Federal Reserve Bank of Richmond president Thomas Barkin said he is looking for signs that demand is cooling to be convinced that US inflation will ease.

BlackRock Investment Institute sees the Fed nearing a pause in rate hikes. “But we don’t see the Fed coming to the rescue of a faltering economy with rate cuts later this year due to the sharp trade-off between inflation and growth,” strategists including Jean Boivin wrote in a note.

Traders also weighed the latest US economic reports, with consumer confidence dropping to a six-month low as views about the labour market and the outlook for business conditions slipped ahead of a deal to raise the debt ceiling. DM

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