Business Maverick

Business Maverick

Chinese shares drag Asia lower on growth headwinds: markets wrap

Chinese shares drag Asia lower on growth headwinds: markets wrap
Pedestrians cross a road in Pudong's Lujiazui Financial District in Shanghai, China, on Monday, April 15, 2024. (Photo: Raul Ariano/Bloomberg)

Chinese shares led losses in Asian equities on concern over the weak property sector and uncertain growth outlook. Most other regional benchmarks also fell as investors positioned for this week’s US inflation data and Federal Reserve policy decision. 

Shares connected to Chinese electric vehicle makers slumped as traders awaited the European Commission’s decision of provisional duties expected this week, while tourism-related shares dropped amid weak holiday travel demand during the recent Dragon Boat Festival holiday. The property sector failed to rally even after the State Council on Friday signalled stronger support for the sector.

“The Hang Seng Index remains weak, with market participants wanting to see more evidence of a recovery trend ahead, but incoming data has been more mixed than assuring,” Jun Rong Yeap, a market strategist at IG Asia Pte, wrote in a client note. “Eyes will be on China’s inflation data this week, where positive consumer price growth may be on watch to reflect some stabilisation in domestic demand.”

Treasuries crept higher in Asia, while the dollar was little changed. Australia’s 10-year bond yield jumped, mainly catching up with Friday’s move in Treasuries as traders pushed out their timeline for Fed interest-rate cuts.

Australian business confidence turned negative and conditions slipped to below-average levels, suggesting elevated interest rates and the worsening consumer outlook are weighing on the corporate sector.

Fed decision

Wall Street’s most-prominent trading desks from JPMorgan Chase & Co. to Citigroup are urging investors to prepare for a potential stock-market jolt after US consumer price data and the Fed rate decision both due on Wednesday.

The Fed is widely expected to keep borrowing costs on hold, but there’s less certainty on officials’ rate projections. A 41% plurality of economists expect policymakers to signal two cuts in their “dot plot” while an equal number expect the forecasts to show just one or no cuts at all.

“The interest-rate guessing game goes on,” said Chris Larkin at E*Trade from Morgan Stanley. “Even the friendliest inflation numbers probably won’t push the Fed to act any sooner than September.”

Investors are also gearing up for a Bank of Japan policy decision Friday. The BOJ is expected to discuss cutting bond purchases at the gathering, with some economists predicting the central bank will also lay the groundwork for raising rates next month.

In commodities, oil pushed higher following its biggest gain since March, ahead of an OPEC report that will provide a snapshot on the market outlook. Gold retreated after gaining on Monday as traders look to this week’s US central bank meeting for more clues on when it may pivot to monetary easing.

The S&P 500 rose 0.3% on Monday to close at a fresh record high. Nvidia began trading after a 10-for-one stock split. GameStop slumped 12%.

Apple Inc. sank even after unveiling new artificial-intelligence features. Apple’s suppliers dropped after Apple’s latest artificial intelligence platform was seen disappointing with limited surprises. Billionaire Elon Musk said he would ban Apple devices from his companies if OpenAI’s artificial intelligence software is integrated at the operating system level, calling the tie-up a security risk. 

European shares slid on Monday after French President Emmanuel Macron called a legislative vote in the wake of a crushing defeat in European Parliament elections. Yields on France’s 10-year bonds climbed to their highest this year, while the nation’s top banks tumbled. 

“The release of a new ‘dot plot’ outlining Fed projections for the path of rates will be the top focus,” said Jason Pride and Michael Reynolds at Glenmede. “For fixed-income investors, the Fed’s more patient higher-for-longer approach is likely to keep bond yields elevated as inflationary pressures remain.”

More than 60% of respondents in the latest MLIV Pulse survey expect US stocks to outperform Treasuries on a volatility-adjusted basis next month. That reading has been higher only three times in the history of the survey going back to August 2022.

In corporate news, developer Dexin China Holdings gets liquidation order from a Hong Kong court adding to a growing number of legal victories for creditors involving overdue debt. 

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