(Bloomberg) — Chinese stocks underperformed a rally that occurred while closed for a week, as investors counting on Beijing to deliver more stimulus were disappointed. A key indicator in Hong Kong plunged the most in 16 years and European futures fell.
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The benchmark CSI 300 index opened with an 11% gain and then pared its gains to 2% after widely expected stimulus measures failed to appear at a news conference in Beijing. The index recovered somewhat afterward. A gauge of Chinese stocks in Hong Kong fell the most intraday since 2008 as some investors took profits and rotated into mainland stocks. Chinese stock turnover rose to a record 2.6 trillion yuan ($368 billion).
Asian stocks broadly fell after Wall Street was dragged down by a technology sell-off, geopolitical angst and bets on a smaller rate cut from the Federal Reserve. MSCI’s Asia-Pacific equity gauge fell the most in two months, the Treasury curve steepened and oil fell.
A briefing by China’s National Development and Reform Commission failed to offer more stimulus measures after policy announcements ahead of the Golden Week holidays sent stocks higher in China and Hong Kong. From JPMorgan Asset Management to HSBC Global Private Banking, numerous investors questioned the sustainability of that rally.
“While the policy tone certainly continues to indicate a supportive tone, the limited new measures appear to disappoint markets for now,” said Lynn Song, chief Greater China economist at ING Bank NV. “In the future, the market trend will probably depend on the speed and strength of policy follow-up by other ministries.”
The S&P 500 fell 1% on Monday after posting a four-week winning streak. In the wake of Friday’s strong jobs data, Treasuries continued to fall, with the 10-year yield above 4%. The Federal Reserve is “well positioned” to achieve a soft landing for the economy, New York Federal Reserve President John Williams told the Financial Times in an interview.
“Friday’s strong jobs report not only appeared to end any chance of a 50 basis point rate cut in November, but also sparked rumors that the Federal Reserve would leave rates unchanged if economic data continues to be weaker.” positive than expected,” said Chris Larkin of Morgan Stanley’s E *Operation. “But as last week demonstrated, geopolitics cannot be ignored.”
At the NDRC briefing, Chinese officials said they were confident of meeting economic targets this year and pledged more support for growth, although they refrained from further stimulus. They said China would continue to issue ultra-long sovereign bonds next year to support major projects and invest 100 billion yuan.
“I wouldn’t be surprised if we now see more volatility around events like the NDRC, because expectations have risen,” said Phillip Wool, head of portfolio management at Rayliant Global Advisors. “I think policymakers are taking a different tack now, and that’s our medium- and long-term focus.”
There is some convergence in markets with investors shifting money from Hong Kong to China, which benefits mainland stocks, said Marvin Chen, a strategist at Bloomberg Intelligence.
Invesco Ltd. and Nomura Holdings Inc. are also among those viewing the recent rally with skepticism and hoping Beijing will back up its stimulus promises with real money.
An overheating A-share market and the Chinese government’s compliance with its recently announced stimulus policy are among the risks investors should watch amid the Chinese stock market rally, according to Morgan Stanley.
The crisis in the Middle East continued to unnerve investors, with fighting intensifying on multiple fronts on Monday after a year of war. The Israel Defense Forces said they intercepted most of a barrage of rockets fired toward Tel Aviv by Hamas and other Iranian-backed groups. Brent crude oil soared to its highest price since August as speculation grew that Israel could attack Iran’s oil infrastructure. West Texas Intermediate rose early Tuesday.
For Morningstar’s Dave Sekera, if there were any new geopolitical escalations, that could spur risk aversion, with growth stocks underperforming value stocks.
“Normally, in a risk-free trade, you’ll see a rotation into defensive stocks, but I would be careful if you’re an investor today,” he said. “Some of the defensive sectors are already overvalued today. Unlike a typical risk-free trade, I think oil stocks would rise.”
This week’s key events:
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The Federal Reserve’s Raphael Bostic, Susan Collins, Philip Jefferson and Adriana Kugler speak Tuesday
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Fed minutes, Wednesday
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Fed’s Lorie Logan, Raphael Bostic, Austan Goolsbee and Mary Daly speak Wednesday
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US Initial Jobless Claims, CPI, Thursday
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Fed’s John Williams and Thomas Barkin speak Thursday
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JPMorgan and Wells Fargo begin the earnings season for the big Wall Street banks on Friday
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US PPI, University of Michigan Consumer Sentiment, Friday
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Fed’s Lorie Logan, Austan Goolsbee and Michelle Bowman speak Friday
Some of the main movements in the markets:
Stocks
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S&P 500 futures were little changed at 6:53 a.m. London time.
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Nasdaq 100 futures fell 0.1%
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Dow Jones Industrial Average futures little changed
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The MSCI Asia Pacific index fell 2.1%
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MSCI Emerging Markets Index fell 2%
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The Japanese Topix fell 1.6%
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Hong Kong’s Hang Seng fell 8.1%
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The Shanghai Composite rose 2.7%
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Euro Stoxx 50 futures fell 0.9%
Coins
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Bloomberg Dollar Spot Index Little Changed
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The euro was little changed at $1.0982
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The Japanese yen rose 0.2% to 147.92 per dollar
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The offshore yuan was little changed at 7.0690 per dollar.
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The pound was little changed at $1.3091.
Cryptocurrencies
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Bitcoin fell 1% to $62,368.2
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Ether fell 0.7% to $2,423.87.
Captivity
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The 10-year Treasury yield fell three basis points to 4.00%
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The yield on the 10-year German bond rose five basis points to 2.26%
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The British 10-year yield rose eight basis points to 4.21%
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The 10-year Japanese bond yield barely changed at 0.925%
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Australia’s 10-year yield rose nine basis points to 4.17%
Raw materials
This story was produced with the help of Bloomberg Automation.
–With help from Shery Ahn, April Ma, Jason Scott and Qizi Sun.
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