Asian Stocks Swing as China Data Offset Fed Bets: Markets Wrap

(Bloomberg) — A gauge of Asian stocks shifted between losses and gains on Monday, with expectations for a Federal Reserve rate cut tempered by signs of enduring slack in China’s economy. 

Hong Kong equities wore the brunt of declines, dropping the most in a week, after a string of poor Chinese data on Saturday left traders wondering if authorities will initiate forceful stimulus to buttress the economy. Japan, South Korea and mainland China were closed for a holiday, while Asian trading of Treasuries was also shut.

The long-anticipated US easing cycle takes center stage this week, part of a 36-hour monetary roller coaster that includes policy decisions in Brazil, South Africa the UK and Japan. While traders are mulling whether the Fed will go for a quarter-point or half-point cut, the Bank of Japan is expected to keep rates on hold after roiling global financial markets by an increase at its last meeting. 

Then yen gained the most among major currencies, while the dollar softened after what the Federal Bureau of Investigation called an apparent assassination attempt against former President Donald Trump. 

“There’s a huge amount of anxiety riding on the Fed’s easing cycle and particularly the pace at which their going to ease,” Katrina Ell, director of economic research Moody’s Analytics, told Bloomberg Television. After the BOJ-induced global market shakeup last month, “the communication from the BOJ will be critical to let market participants know exactly, as clear as they can be, what the next move and the particular timings of the next moves will be.”  

Given the closures, investors will likely be cautious ahead of regional trade data and Bank Indonesia’s policy decision just hours before the Fed. Global funds have been snapping up Southeast Asian assets as the prospect of interest-rate cuts and attractive valuations holds out the promise of supersized returns. 

That optimism stands in contrast to China, where factory output, consumption and investment all slowed more than forecast for August, while the jobless rate unexpectedly hit a six-month high. China’s central bank signaled late Friday it would step up its fight against deflation and prepare more policies to revive the economy, after credit data showed private confidence remained weak. 

A revival of wagers a 50 basis point rate cut by the Fed, prompted Treasury yields to fall a second straight, week with two-year notes closing at a two-year low on Friday. About 110 basis points of rate cuts priced by year-end, according to data compiled by Bloomberg. 

“It is a big week ahead” and clearly the 25 or 50 basis point riddle needs to be solved, said Martin Whetton, head of financial markets strategy at Westpac Banking Corp. in Sydney. “At the very least a dovish cut should be expected given the run of data and the starting point for policy, and this should justify market forward pricing.”

Key events this week: 

• ECB speakers including Vice President Luis de Guindos and chief economist Philip Lane, Monday
• US empire manufacturing, Monday
• Singapore trade, Tuesday
• Federal Reserve begins two-day meeting, Tuesday
• US business inventories, industrial production, retail sales, Tuesday
• Canada CPI, Tuesday
• Indonesia rate decision, Wednesday
• South Africa retail sales, CPI, Wednesday
• UK CPI, Wednesday
• Eurozone CPI, Wednesday
• US rate decision, Wednesday
• Brazil rate decision, Wednesday
• Australia unemployment, Thursday
• New Zealand GDP, Thursday
• Taiwan rate decision, Thursday
• Norway rate decision, Thursday
• UK rate decision, Thursday
• South Africa rate decision, Thursday
• China loan prime rates, Friday
• Japan CPI, interest rate decision, Friday
• ECB President Christine Lagarde speaks, Friday
• Bank of Canada Governor Tiff Macklem speaks, Friday

Some of the main moves in markets: 

Stocks

• S&P 500 futures were little changed as of 11:04 a.m. Tokyo time
• Nikkei 225 futures (OSE) fell 0.3%
• Australia’s S&P/ASX 200 rose 0.4%
• Hong Kong’s Hang Seng fell 0.3%
• Euro Stoxx 50 futures rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%
• The euro rose 0.1% to $1.1089
• The Japanese yen rose 0.2% to 140.51 per dollar
• The offshore yuan was little changed at 7.0996 per dollar
• The Australian dollar was little changed at $0.6707

Cryptocurrencies

• Bitcoin fell 2.2% to $58,515.84
• Ether fell 3.7% to $2,275.48

Bonds

• Australia’s 10-year yield declined one basis point to 3.81%

Commodities

• West Texas Intermediate crude rose 0.5% to $68.97 a barrel
• Spot gold rose 0.2% to $2,582.32 an ounce

This story was produced with the assistance of Bloomberg Automation.

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