Global Equity Rally Collapses on China; Dollar Rise: Market Recap

(Bloomberg) – A rally in global equities faltered on Monday under the weight of falling Chinese equities, with U.S. futures and major Asian indices losing much of earlier gains made amid falling Treasury yields.

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A gauge of dollar strength advanced in choppy trading that saw wild swings in the yen amid signs of a second intervention by Japanese authorities in two sessions.

The pound was a notable exception in its rise against the greenback after Boris Johnson pulled out of the race to lead the UK’s ruling Conservative Party, bringing Rishi Sunak one step closer to becoming the next prime minister.

The Chinese yuan also weakened along with the country’s stocks as investors reacted to the risks posed by President Xi Jinping’s decision to pile his leaders with loyalists. Hong Kong’s Hang Seng index fell around 6%, with tech companies among the hardest hit.

“The Hong Kong market is having a moment of panic,” said Dickie Wong, executive director of research at Kingston Securities Ltd. between China and the United States continue to depress sentiment and add uncertainty.

Chinese economic data that was delayed last week and released on Monday showed a mixed recovery, with unemployment rising and retail sales weakening despite a pickup in growth. Still, Xi’s Covid-zero campaign looks likely to continue to weigh on the economy and there has been speculation that his “common prosperity” goal could even lead to property and inheritance taxes.

More generally, markets are taking inspiration from falling US bond yields as investors look beyond the current state of aggressive monetary tightening from the Federal Reserve to the next phase, which could see a slowdown or pause in the interest rate hikes.

Ten-year Treasury yields fell further on Monday, to around 4.15%, after reversing a rise on Friday. Yields also fell in Australia, led by the politically sensitive three-year maturity.

St. Louis Fed President James Bullard and his San Francisco counterpart Mary Daly made it clear last week that they expected discussion at the November meeting to include debate on the level of rate increases and when to slow the pace of increases. They stressed the need to continue to tighten for now.

Gains in stock gauges in Japan and South Korea fell to less than 1% while the advance in US futures was almost entirely eroded as momentum waned after ensuing sharp opens Wall Street stocks had their best week since June.

Key events this week:

  • Revenue due this week includes: Apple, Microsoft, Exxon Mobil, Ford Motor, Credit Suisse, Airbus, Alphabet, Amazon, Bank of China, Boeing, Caterpillar, Cnooc, Coca-Cola, HSBC, Intel, McDonald’s, Mercedes-Benz, Merck, Samsung Electronics, Shell, UBS, UPS, Vale, Visa, Volkswagen

  • Eurozone PMI, United States, Monday

  • US Conference Board Consumer Confidence, Tuesday

  • Bank of Canada rate decision Wednesday

  • ECB rate decision Thursday

  • US GDP, durable goods orders, first jobless claims, Thursday

  • Bank of Japan policy decision Friday

  • US Personal Income, Personal Spending, Pending Home Sales, University of Michigan Consumer Sentiment, Friday

Some of the major movements in the markets:

Shares

  • S&P 500 futures rose 0.1% at 6:51 a.m. London time. The S&P 500 rose 2.4% on Friday

  • Nasdaq 100 futures rose 0.3%. The Nasdaq 100 rose 2.4%

  • Australia’s S&P/ASX 200 index rose 1.5%

  • The Topix index rose 0.4%

  • South Korea’s Kospi index rose 0.9%

  • The Hang Seng index fell 5.9%

  • The Shanghai Composite Index fell 1.6%

  • Euro Stoxx 50 futures rose 0.7%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.3%

  • The euro fell 0.1% to $0.9848

  • The Japanese yen fell 0.9% to 148.94 per dollar

  • The offshore yuan fell 0.5% to 7.2677 per dollar

  • The British Pound rose 0.5% to $1.1354

Cryptocurrencies

  • Bitcoin fell 0.8% to $19,344.42

  • Ether rose 0.9% to $1,342.40

Obligations

Goods

  • West Texas Intermediate crude fell 0.9% to $84.27 a barrel

  • Spot gold fell 0.1% to $1,655.73 an ounce

–With the help of Charlotte Yang.

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