Stocks Fall on China Data, Concern Over Recession: Market Wrap

(Bloomberg) — Stocks fell in Asia and the dollar strengthened as risk appetite was dented by deflation risks in China and threats of a US recession.

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An Asia equity benchmark slipped for a fourth day, heading for the lowest close in more than a month. Shares in Hong Kong and mainland China pared gains after Chinese data showed further declines in factory-gate prices while core inflation slowed. The offshore yuan swung to a loss after the data.

Traders had initially focused on optimism that a crackdown by Beijing on Chinese tech companies was nearing an end, sending the Hang Seng Tech Index up as much as 3.2%, before trimming its advance.

“It is clear that China is facing excess supply now,” said Zhaopeng Xing, senior China strategist at Australia & New Zealand Banking Group Ltd. “Demand side policies will be in need,” with the focus now shifting to expectations of fiscal stimulus before China’s July Politburo meeting, he said.

European stock futures declined, while those for the US extended losses after most American equities dropped Friday when wage data showed inflation remained a threat. The S&P 500 fell 1.2% over the holiday-shortened week, while the Nasdaq 100 dropped 0.9%.

The dollar strengthened against all its Group-of-10 peers. The yen weakened 0.4%, while Japanese stocks were among the worst performers in the region. Treasury yields were little changed, with the two-year remaining below 5%, and the 10-year just above 4%.

Investors continue to face a host of competing forces, including the risk of higher interest rates and recession.

US Treasury Secretary Janet Yellen said on the weekend she wouldn’t rule out the threat of a US recession, noting that it was “appropriate and normal” for growth to moderate and that inflation remains too high.

“Everyone is looking at inflation or has been looking at inflation for a long time,” Nicolo Bocchin, global head of fixed income at Azimut Group, said on Bloomberg Television. “Now it’s time to look at growth.”

Treasury yields may reach around 4.5% on the long end of the curve in the next few quarters and it may move “a little lower on the short end of the curve, just because of a reassessment of growth probabilities,” Bocchin said.

Inflation Data

US jobs data last week have tamped down speculation the Federal Reserve would leave interest rates unchanged this month. The outlook beyond that is unclear. Payroll figures fell short of estimates but brought signs that wage inflation remains a threat to the Fed’s fight against price gains.

Traders will also be closely watching this week’s US consumer prices data. Bloomberg economists are expecting the headline number to fall to 3.1%, though they don’t see that stopping the Fed hiking at its meeting later this month.

Downside surprises in this week’s inflation indicators could charge up the bulls, taking the S&P 500 above the channel, according to Ed Yardeni, president of his namesake research firm. “On the other hand, higher-than-expected inflation readings could heighten fears that the Fed will have to tighten monetary policy to cause a recession as the only clear way to bring inflation down.”

Back in Asia, despite the current economic downturn, some investors still see China as a prospective market. Chinese authorities said on Friday they would wrap up a probe into Ant Group Co., with the financial technology company paying a fine of almost $1 billion, to suggest that a broader regulatory crackdown is ending.

Oil edged lower Monday after two consecutive weekly increases, and gold fell slightly.

Key events this week:

US wholesale inventories, Monday
Federal Reserve speakers include Mary Daly, Loretta Mester, Raphael Bostic and Michael Barr, Monday
Bank of England Governor Andrew Bailey delivers speech, Monday
St. Louis Fed President James Bullard speaks, Tuesday
Canada rate decision, Wednesday
US CPI, Wednesday
Federal Reserve issues Beige Book, Wednesday
Federal Reserve speakers include Neel Kashkari, Loretta Mester, Raphael Bostic, Wednesday
Bank of England Governor Andrew Bailey speaks, Wednesday
China trade, Thursday
Eurozone industrial production, Thursday
US initial jobless claims, PPI, Thursday
US University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

S&P 500 futures fell 0.2% as of 6:34 a.m. London time. The S&P 500 fell 0.3% on Friday
Nasdaq 100 futures fell 0.3%. The Nasdaq 100 fell 0.4%
Japan’s Topix index fell 0.2%
Hong Kong’s Hang Seng Index rose 0.5%
China’s Shanghai Composite Index was little changed
Australia’s S&P/ASX 200 Index fell 0.3%
Euro Stoxx 50 futures fell 0.3%

Currencies

The Bloomberg Dollar Spot Index rose 0.2%
The euro fell 0.1% to $1.0953
The Japanese yen fell 0.5% to 142.93 per dollar
The offshore yuan fell 0.1% to 7.2430 per dollar
The Australian dollar fell 0.4% to $0.6663
The British pound fell 0.2% to $1.2808

Cryptocurrencies

Bitcoin fell 0.2% to $30,132.44
Ether fell 0.5% to $1,860.38

Bonds

The yield on 10-year Treasuries advanced one basis point to 4.08%
Japan’s 10-year yield advanced 1.5 basis points to 0.460%
Australia’s 10-year yield advanced three basis points to 4.28%

Commodities

West Texas Intermediate crude fell 0.6% to $73.39 a barrel
Spot gold fell 0.2% to $1,921.29 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Abhishek Vishnoi and Ran Li.