Asia Stocks Extend Declines on Fed, China Concerns: Markets Wrap

2023-08-17 08:53

Shares in Asia fell Thursday after a selloff in US stocks and bonds as investors digested hawkish signals

Asia Stocks Extend Declines on Fed, China Concerns: Markets Wrap

Shares in Asia fell Thursday after a selloff in US stocks and bonds as investors digested hawkish signals from the Federal Reserve and further signs of stress in China.

Equities in Japan and South Korea opened lower and futures contracts for Hong Kong benchmarks fell while a gauge of stocks in the region extended losses into a fifth session. The S&P 500 declined 0.8% Wednesday and the Nasdaq 100 dropped 1.1%, with heavyweights Meta Platforms Inc, Amazon.com Inc. and Tesla Inc, down more than 1.5%. US futures also slipped in early Asian trading.

The 10-year Treasury yield touched fresh intraday highs not seen since October, while yields on the policy-sensitive two-year notes inched higher to near 5%. The selling erased gains for the year for an index of US government debt.

Those moves followed minutes from the Fed’s July meeting that fanned concerns the central bank would continue to raise interest rates to quell inflation.

“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.”

The Bloomberg dollar index rose to a two-month high and the pound strengthened following higher-than-expected UK inflation data.

Australian and New Zealand bond yields rose in early Thursday trade. Australian jobs data due later is expected to show a slowing in new hires and an increase in the unemployment rate.

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.

The country’s real estate slump may be worse than official data suggest. One of China’s biggest shadow banks skipped payments on several investment products, sparking rare protests in Beijing. The company offers high-yielding trust products linked to the country’s embattled real estate market.

Also, revenue from Tencent Holdings Ltd. disappointed in a warning for the country’s tech sector, and 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. So far the steps have failed to restore optimism, with the US Treasury warning about the consequences for the global economy.

Still, markets are not yet fully reflecting the risks from China’s deteriorating fundamentals, according to Tiffany Wilding, an economist and managing director at Pacific Investment Management Co.

“Given the usual lags, deflationary spillovers have likely only just begun to impact global consumer markets,” Wilding wrote in a note to clients. “Discounting is likely to accelerate over the coming quarters.”

Corporate Highlights:

London-listed BAE Systems Plc is in talks on a possible acquisition of Ball Corp.’s aerospace division, people with knowledge of the matter said.
Intel Corp.’s $5.4 billion deal with Israel’s Tower Semiconductor Ltd. collapses after failing to win Chinese regulatory approval in time.
Energy Transfer LP will buy Crestwood Equity Partners LP in a $7.1 billion all-equity deal allowing Energy Transfer to expand its US pipeline network.
Target Corp. climbs after a surprising profit surge in the second quarter overshadows the company’s increasingly cautious outlook on the rest of the year.

Key events this week