Asia stocks fall as China PMI data sours sentiment: Markets wrap

July 05, 2023

Asian shares declined Wednesday as growth in China’s services industry slowed, underscoring concerns over the tepid recovery in the world’s second-largest economy.

A region-wide gauge of equities dropped 0.5%, as stocks also fell in Japan, South Korea and Australia. Futures for benchmarks in the US and Europe edged lower.

Initial losses in Chinese equities deepened and the offshore yuan reversed an advance after the Caixin China services purchasing managers’ index was weaker than expected. The yuan’s drop came despite the central bank earlier maintaining its support for the currency in its daily fix.

“This brings focus back on slowing growth momentum and the recent step-up in geopolitical angst,” said Charu Chanana, market strategist at Saxo Capital Markets.

In Japan, Rakuten Group shares fell after news that the e-commerce company took a step to list its online brokerage arm. The stock dropped as much as 2.9% amid market concerns over its debt levels, before inching back into positive territory.

The yield on the two-year Treasury fell around four basis points to 4.9% as trading resumed on Wednesday following the Independence Day holiday in the US. The 10-year yield hovered around 3.84%.

The two-year yield on Monday exceeded the 10-year rate by the largest amount since March, when the key 2s10s segment of the yield curve became the most inverted since the 1980s.

The yen steadied on Wednesday on the stronger side of the 145 level versus the dollar after a bout of weakness that’s triggered unease among policymakers in Tokyo. The Australian dollar, which is sensitive to China’s outlook, slipped following the release of the PMI data.

Elsewhere, oil weakened after rallying more than 2% Tuesday on Saudi Arabian and Russian output cuts. Traders are waiting for potentially critical commentary from Saudi energy minister. Gold was little changed.

After US stocks rallied hard in the first half of the year, investors are now worried that higher rates and a worsening economic backdrop will limit gains from here on. Among notes of caution, Goldman Sachs Group Inc. strategists wrote that it’s too early to dismiss the risk of higher interest rates weighing on stocks.

Not everyone is as gloomy.

“As we approach a slowdown, we want to be more conservative, more high quality tilt,” Tai Hui, chief market strategist for Asia Pacific at JPMorgan Asset Management, said on Bloomberg Television. “But once the economy, all the bad news get flushed out, that’s where I think equity will really shine.”

Looking further ahead, Friday’s US nonfarm payrolls report will be a key event for markets that offers hints on the trajectory of monetary policy.

Key events this week:

  • Eurozone S&P Global Eurozone services PMI, PPI, Wednesday

  • OPEC International Seminar, speakers including OPEC+ oil ministers, kicks off in Vienna, Wednesday

  • FOMC issues minutes on June policy meeting, Wednesday

  • New York Fed President John Williams in “fireside chat” at meeting of the Central Bank Research Association at the New York Fed, Wednesday

  • US initial jobless claims, trade, ISM services, job openings, Thursday

  • Dallas Fed President Lorie Logan speaks on a panel about the policy challenges for central banks at CEBRA meeting, Thursday

  • US unemployment rate, nonfarm payrolls, Friday

  • ECB’s Christine Lagarde addresses an event in France, Friday

Some of the main moves in markets today:

Stocks

  • S&P 500 futures fell 0.1% as of 1:29 p.m. Tokyo time

  • Nasdaq 100 futures fell 0.1%

  • Japan’s Topix fell 0.2%

  • Australia’s S&P/ASX 200 fell 0.4%

  • Hong Kong’s Hang Seng fell 1.4%

  • The Shanghai Composite fell 0.5%

  • Euro Stoxx 50 futures fell 0.2%

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro was little changed at $1.0877

  • The Japanese yen was little changed at 144.48 per dollar

  • The offshore yuan fell 0.2% to 7.2397 per dollar

  • The Australian dollar fell 0.1% to $0.6683

Cryptocurrencies

  • Bitcoin rose 0.2% to $30 862.37

  • Ether fell 0.2% to $1 938.51

Bonds

  • The yield on 10-year Treasuries declined one basis point to 3.84%

  • Australia’s 10-year yield declined two basis points to 3.99%

Commodities

  • West Texas Intermediate crude traded at $70.85 a barrel

  • Spot gold was little changed

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