Asian stocks traded mixed Tuesday as China’s sluggish economic recovery triggered growth forecast cuts and a warning from US Treasury Secretary Janet Yellen that it could cause ripple effects across the global economy.
Shares rose in Japan, but fell in South Korea and Australia. Futures for Hong Kong equities pointed to small losses. Contracts for US stocks were slightly lower after the S&P 500 gained 0.4% and the tech-heavy Nasdaq 100 rose almost 1% on Monday, with Activision Blizzard Inc. advancing after Microsoft Corp. and British regulators held “productive” talks needed to clear the companies’ $69 billion tie-up.
Optimism is mounting in the US that the Federal Reserve is nearing the end of its monetary-tightening cycle as the inflation threat wanes. The dollar was little changed against major peers in early Asia trading on Tuesday. Treasuries steadied in early trading hours in Asia after the yields fell across the curve on Monday.
As the Fed nears the endpoint for the cycle, investors will become increasingly comfortable adding duration exposure, according to BMO Capital Markets strategist Ian Lyngen. “In the very near-term, the trajectory of rates will be a sideways shuffle until the Chair’s press conference ends the hawkish versus dovish hike debate,” he wrote in a note.
Japan firms in the related supply chain for electric vehicles rose after Tesla shares advanced and BYD reported a threefold increase in first-half net profit.
While risk sentiment got a boost in the US, concern is growing in Asia after China’s disappointing economic figures released Monday prompted economists at several major banks to downgrade outlooks. JPMorgan Chase & Co., Morgan Stanley and Citigroup Inc. cut their growth projections for this year to 5%, putting Beijing’s official gross domestic product target of around 5% at risk.
In the hours after the data release, which helped push stocks in Shanghai lower on Monday, calls mounted from investors for Beijing to inject real stimulus into its flagging economy.
“You’re gonna see some stimulus coming in, which means that the second quarter may have been more of the low, the third quarter a bit better,” Joyce Chang, global head of research at JPMorgan, said on Bloomberg Television. “But we’ve taken half a percent off of China’s growth and I think that the deflation risks are there.”
Yellen said in a Bloomberg TV interview that “many countries do depend on strong Chinese growth to promote growth in their own economies, particularly countries in Asia, and slow growth in China can have some negative spillovers for the United States.”
Still, Yellen said that while US growth has slowed, the labor market looked quite strong and she didn’t expect a recession to hit the world’s biggest economy. The nation is on a “good path” to bringing down inflation without a major weakening in the jobs picture, she said.
In the US, the next pressure point for markets will be earnings, with hundreds of companies reporting over the next few weeks. S&P 500 firms are expected to post a 9% drop in profits in the second quarter, making it the worst season since 2020, according to data compiled by Bloomberg Intelligence. In Europe, it may be even worse, with a projected 12% slump.
“Running bulls could be tripped up by cracks in the economy and corporate earnings,” said Saira Malik, chief investment office of Nuveen. “Looking at S&P 500 corporate earnings as a gauge, analyst estimates continue to be revised lower for both the second quarter of 2023 and the full year.”
In commodities, both oil and gold were little changed.
Key events this week:
- US retail sales, industrial production, business inventories, cross-border investment, Tuesday
- Eurozone, UK CPI, Wednesday
- US housing starts, Wednesday
- China loan prime rates, Thursday
- US initial jobless claims, existing home sales, Conf. Board leading index, Thursday
- Japan CPI, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.1% as of 9:07 a.m. Tokyo time. The S&P 500 rose 0.4%
- Nasdaq 100 futures fell 0.1%. The Nasdaq 100 rose 0.9%
- Japan’s Topix index rose 0.5%
- Australia’s S&P/ASX 200 Index fell 0.1%
- Hong Kong’s Hang Seng futures fell 0.7%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was unchanged at $1.1236
- The Japanese yen was little changed at 138.82 per dollar
- The offshore yuan was little changed at 7.1834 per dollar
- The Australian dollar was little changed at $0.6811
Cryptocurrencies
- Bitcoin rose 0.8% to $30,167.8
- Ether rose 1.3% to $1,914.35
Bonds
- The yield on 10-year Treasuries was little changed at 3.80%
- Australia’s 10-year yield was little changed at 3.98%
Commodities
- West Texas Intermediate crude rose 0.1% to $74.24 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Joanna Ossinger.
