Stock price information displayed above a trading floor at the Euronext NV stock exchange in Paris, France, on Tuesday, 1 August 2023. (Photo: Nathan Laine/Bloomberg) Shares in Japan, Australia, China and South Korea all retreated. The losses dragged a region-wide equity gauge to levels not seen since March and put it on pace for its biggest two-day drop since October.
Hong Kong’s Hang Seng Index was on track to enter a bear market while a gauge of tech shares in the financial hub retraced early losses to eke out a gain. Investors weighed disappointing revenues from Tencent Holdings Ltd., the latest in a drumbeat of dour corporate and macro news.
The country’s property slump may be worse than official data suggest. One of China’s biggest shadow banks is said to be planning to restructure its debt and has hired KPMG LLP to conduct an audit of its balance sheet. A unit of China Evergrande Group said the Chinese securities regulator has built a case against it relating to suspected information disclosure violations.
The cluster of concerns come as China’s central bank moved to boost fragile sentiment with a stronger-than-expected reference rate for the yuan and the largest injection of short-term cash to the financial system since February on Wednesday. So far the steps have failed to restore optimism, with the US Treasury warning about the consequences for the global economy.
“The market is definitely reacting to a lot of the bad news,” Vanessa Chan, head of Asian fixed income investment directing for Fidelity Investment Management HK Ltd, told Bloomberg Television. “Not just on the Country Garden situation but also to some extent the macro data and the headlines.”
China ramped up its efforts to stem losses in the yuan on Thursday by offering the most forceful guidance since October through its daily reference rate for the managed currency. The offshore yuan was steady against the greenback. The Bloomberg dollar index firmed as Treasury yields climbed across the curve.
The 10-year Treasury yield touched levels last seen in October, extending the selling pressure seen on Wednesday, while the rate on the policy-sensitive two-year notes approached 5%. The selling erased gains for the year for an index of US government debt.
The dollar’s strength came on the heels of minutes from the Fed’s July meeting that fanned concerns the central bank would continue to raise interest rates to quell inflation. It’s feeding into this month’s dominant playbook, where investors are selling Treasuries and emerging markets on the expectation that policy rates will stay higher for longer.
Elsewhere, the Australian dollar weakened after jobs data showed a higher-than-expected rise in the unemployment rate. The pound steadied after a Wednesday rally following higher-than-anticipated UK inflation data.
Australian and New Zealand yields climbed by around 10 basis points. The rise pushed the Australian 10-year yield to 4.31%, the highest since early 2014.
The yen slumped to a 2023 low and traded at levels that previously triggered Japan’s intervention in September, while the offshore yuan weakened against the backdrop of financial and economic worries.
Futures contracts for the S&P 500 and Nasdaq 100 edged lower, compounding Wednesday losses for the underlying benchmarks, as declines for Meta Platforms Inc, Amazon.com Inc. and Tesla Inc weighed on benchmarks.
“The Fed has no choice but to keep it up until they are convinced that inflationary expectations are quashed,” Steve Sosnick, chief strategist at Interactive Brokers, said after the minutes were released. “Doing otherwise risks some of the embers reigniting. Even though two governors favored keeping rates steady in July, it is important to keep in mind that a pause is not a pivot.” DM