Stocks Drop Amid Risk-Off Mood Ahead of Key Events: Markets Wrap

This content was published on July 30, 2024 - 06:20

5 minutes

(Bloomberg) — Asian stocks fell amid speculation investors are trimming some of their holdings before a rush of events in coming days including major central bank decisions, key economic data and earnings from US megacap companies.

The MSCI Asia Pacific Index extended July’s decline to 0.5%, set for its first monthly drop since April. Shares in Hong Kong led losses Tuesday, falling more than 1%, as optimism waned over the Chinese government’s stimulus plans. Australian and Japanese stocks also slipped, and US equity futures inched lower.

The yen held near the strongest level in 12 weeks before a Bank of Japan policy decision on Wednesday. The dollar crept higher against most of its major peers as traders positioned for a Federal Reserve review the same day. Treasuries were little changed, heading for a third month of gains.

“Market participants are taking risk off the table ahead of heavy event risks this week from key central bank meetings to Big tech earnings,” said Charu Chanana, a strategist at Saxo Capital Markets in Singapore.

BOJ Governor Kazuo Ueda will have investors on high alert Wednesday when he lays out a detailed plan for quantitative tightening after years of massive easing. He may also double down by adding an interest-rate hike. The central bank is looking for evidence sustained increases in wages will spur a recovery in consumption and kindle demand-led price growth, allowing authorities to further normalize monetary policy.

China’s bonds advanced, with 10-year yields dropping to another record low. The rally in the securities is seen testing the patience of the central bank, which is walking a tightrope between boosting growth with easing measures and reining in potential financial shocks from an overheated bond market.

Investors are also on the lookout for the outcome of a Chinese Politburo meeting — possibly some time this week — for any guidance on potential stimulus measures. Still, sentiment remains bearish after efforts to help growth this year failed to reverse a property downturn and revive subdued consumer demand.

“Investing in China heavily relies on policies, but from the Third Plenum to Politburo now, so far there have been no exciting policies,” said Steven Leung, executive director at UOB Kay Hian Hong Kong. “Investors have no interest in China stocks, and tend to further trim their positions.”

The S&P 500 closed a fraction higher Monday with a gauge of the “Magnificent Seven” megacaps rising 1%. The Russell 2000 of smaller firms fell 1.1%. Tesla Inc. jumped on a bullish Morgan Stanley call. McDonald’s Corp. investors shrugged off a sales drop as executives pledged to launch new promotions.

US policymakers, who’ve kept rates at a more than two-decade high for a full year, are widely expected to leave them there again on Wednesday. But investors see officials signaling a move in September as risks grow of imperiling a solid, but moderating job market.

July’s wild ride in stocks has underscored how betting on seven large tech companies is no longer a simple, slam-dunk trade. During most of the month, investors jumped into other corners of the market on speculation Fed cuts will further boost Corporate America. Still, the S&P 500 ended up suffering two straight weeks of losses, dragged down by its most-influential group – technology.

In corporate news, BHP Group Ltd. has teamed up with Lundin Mining Corp. to buy Filo Corp., gaining access to South American copper projects.

Commodities have erased all of their gains this year as a challenging outlook in China, combined with a selloff in US natural gas and losses in foodstuffs, have weighed on raw materials. Gold edged lower for a second day as the dollar steadied.

Key events this week: