Stocks Fall as China Data Undermines Risk Sentiment: Markets Wrap

(Bloomberg) — U.S. and European benchmark futures fell along with Asian stocks on Wednesday as slowing growth in China’s service industry dampened appetite for stocks.

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A measure of dollar strength rose, while the yield on the policy-sensitive two-year Treasury drifted about two basis points to 4.92% as US bond trading resumed after the Independence Day holiday.

Initial losses in Chinese stocks deepened and the offshore yuan reversed advance after the Caixin China Services Purchasing Managers’ Index was weaker than expected, underscoring concerns about a tepid recovery in the world’s second-largest economy.

The yuan’s decline was also notable because it came despite the central bank earlier maintaining support for the currency in its daily fix.

“This refocuses on slow growth momentum and the recent escalation in geopolitical anxiety,” said Charu Chanana, market analyst at Saxo Capital Markets, of the Chinese services data.

Fading optimism about the outlook for China also prompted investors to cut their forecasts for gains in Asian stocks this year. A Bloomberg News survey of 17 strategists and fund managers suggests the MSCI Asia-Pacific Index could rise just 5% by year-end from Tuesday’s closing level.

The Asia-wide gauge fell more than 0.5% on Wednesday as stocks also fell in Japan, South Korea and Australia. S&P 500 futures fell 0.1% while Euro Stoxx 50 futures fell 0.3%.

Traders will also be watching the Eurozone Services PMI data on Wednesday, and later the minutes from the Federal Reserve’s latest policy meeting, which left Wall Street scratching their heads.

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The yen fluctuated on the stronger side of the 145 level against the dollar after a bout of weakness worried policy makers in Tokyo. The Australian dollar, which is affected by the expectations of China, fell after the release of the PMI data.

Elsewhere, oil weakened after rising on Tuesday due to production cuts in Saudi Arabia and Russia. Traders are awaiting a critical comment from the Saudi energy minister. Gold changed a little.

After US stocks rose strongly in the first half of the year, investors are now worried that higher interest rates and a worsening economic backdrop will cap gains going forward. Among the cautionary notes, strategists at Goldman Sachs Group Inc. It is too early to rule out the risk of rising interest rates on equities.

Not everyone is gloomy.

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

Looking ahead, Friday’s US Nonfarm Payrolls report will be a major event for the markets that will provide more hints about the path of monetary policy.

Main events this week:

• S&P Global Eurozone Services PMI, PPI, Wed

• The OPEC International Symposium, and speakers including OPEC+ oil ministers, kick off in Vienna, Wednesday

• The Federal Open Market Committee releases the minutes of its June policy meeting, Wednesday

• New York Federal Reserve Bank President John Williams in a “side chat” at the Central Bank Research Association meeting at the Federal Reserve Bank of New York, Wednesday

• US Initial Jobless Claims, Commerce, ISM Services, Jobs, Thursday

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

• US Unemployment Rate, Nonfarm Payrolls, Friday

• Christine Lagarde of the European Central Bank speaking at an event in France, Friday

Some of the major movements in the markets today:

Stores

• S&P 500 futures were down 0.1% as of 7:09 a.m. London time.

• The Nasdaq 100 fell 0.2%.

• Japanese Topix was only partially weaker

• Australia’s S&P/ASX 200 fell 0.3%

• Hong Kong’s Hang Seng fell 1.6%.

• The Shanghai Composite Index fell 0.6%.

• Euro Stoxx 50 futures fell 0.3%

currencies

• The Bloomberg Spot Dollar Index has not changed

• The euro remained unchanged at $1.0879

• The Japanese yen fell 0.1 percent to 144.63 per dollar

• The external yuan fell 0.3 percent to 7.2467 per dollar

• The Australian dollar fell 0.1% to $0.6684

• The British pound was little changed at $1.2702

Digital currencies

• Bitcoin changed little at $30,805.7

• Ether fell 0.4% to $1,934.81

bonds

goods

This story was produced with help from Bloomberg Automation.

– With the help of Jun Cheng.

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