Chinese Shares Drag Asia Lower on Growth Headwinds: Markets Wrap

Chinese stocks were the biggest losers in the Asian equities market due to worries about the struggling property sector and uncertain growth prospects. Other regional benchmarks also experienced declines as investors prepared for the release of US inflation data and the Federal Reserve’s policy decision this week.

Investors were cautious about shares related to Chinese electric vehicle makers as they awaited the European Commission’s decision on provisional duties, which is expected to be announced this week. Additionally, tourism-related shares saw a drop in value due to weak demand for holiday travel during the recent Dragon Boat Festival. Despite the State Council signaling stronger support for the sector, the property market failed to see a rally.
According to Jun Rong Yeap, a market strategist at IG Asia Pte, the Hang Seng Index is still weak and market participants are looking for more evidence of a recovery trend. However, incoming data has been mixed, causing uncertainty. This week, investors will be closely watching China’s inflation data, as positive consumer price growth could indicate some stabilization in domestic demand.

In the Asian market, Treasuries saw a slight increase, while the dollar remained relatively unchanged. Australia’s 10-year bond yield experienced a significant jump, catching up with the movement in Treasuries from Friday as traders adjusted their expectations for Fed interest-rate cuts.

The business confidence in Australia has turned negative, and conditions have fallen below average levels. This suggests that the high interest rates and deteriorating consumer outlook are negatively impacting the corporate sector.

The upcoming Fed decision is also a key event to watch in the financial markets.
Prominent trading desks on Wall Street, including JPMorgan Chase & Co. and Citigroup Inc., are advising investors to be prepared for a potential shake-up in the stock market. This comes as US consumer price data and the Federal Reserve’s rate decision are both scheduled for release on Wednesday.

While it is widely anticipated that the Fed will maintain current borrowing costs, there is less certainty surrounding officials’ rate projections. A significant number of economists expect the Fed’s forecasts, known as the “dot plot,” to indicate two rate cuts, while an equal number expect no cuts or only one cut.

Chris Larkin, an expert at E*Trade from Morgan Stanley, commented on the ongoing speculation around interest rates, stating, “The interest-rate guessing game goes on. Even if inflation numbers are favorable, it is unlikely to push the Fed to take action before September.”

Investors are also closely monitoring the Bank of Japan’s policy decision, which is scheduled for Friday. There is speculation that the BOJ will discuss reducing bond purchases during the meeting, and some economists predict that the central bank may lay the groundwork for raising rates next month.
Oil prices increased after experiencing their largest gain since March, as investors awaited an OPEC report that would provide insights into the market’s future. Meanwhile, gold prices retreated after a previous increase, as traders focused on the upcoming US central bank meeting for indications of potential monetary easing.

The S&P 500 reached a new record high, rising by 0.3% on Monday. Nvidia Corp. began trading following a 10-for-one stock split, while GameStop Corp. experienced a 12% decline.

Despite unveiling new artificial intelligence features, Apple Inc. saw its stock price drop. This decline also affected Apple’s suppliers, as the latest artificial intelligence platform was considered underwhelming and lacking surprises. Billionaire Elon Musk expressed concerns about the integration of OpenAI’s artificial intelligence software at the operating system level, labeling it a security risk and stating that he would prohibit the use of Apple devices in his companies.
European stocks declined on Monday following French President Emmanuel Macron’s decision to call for a legislative vote after suffering a significant defeat in the European Parliament elections. This led to an increase in yields on France’s 10-year bonds, reaching their highest level this year, and a decline in the country’s major banks.

According to Jason Pride and Michael Reynolds from Glenmede, the release of a new “dot plot” outlining the Federal Reserve’s projections for interest rate movements will be the primary focus. They believe that the Fed’s patient and long-term approach to higher interest rates will keep bond yields elevated due to ongoing inflationary pressures.

In the latest MLIV Pulse survey, more than 60% of respondents anticipate that US stocks will outperform Treasuries on a volatility-adjusted basis next month. This level of optimism has only been recorded three times since the survey’s inception in August 2022.
Here are the latest corporate news highlights:

  • Dexin China Holdings, a developer, has received a liquidation order from a Hong Kong court. This adds to the growing number of legal victories for creditors dealing with overdue debt.
  • Elliott Investment Management, an activist investor, has called for significant changes in Southwest Airlines Co.’s leadership. The goal is to reverse what it perceives as years of underperformance by one of the largest US carriers.
  • Morgan Stanley has downgraded Advanced Micro Devices Inc., citing high investor expectations for the chipmaker’s AI business.
  • KKR & Co., CrowdStrike Holdings Inc., and GoDaddy Inc. will be added to the S&P 500 as part of the index’s latest quarterly weighting change.
  • Noble Corp., the largest offshore oil-rig contractor by market value, has agreed to acquire its smaller rival Diamond Offshore Drilling Inc. in a deal worth $1.6 billion.

Key events to watch this week include:

  • China’s Producer Price Index (PPI) and Consumer Price Index (CPI) on Wednesday.
  • Germany’s CPI on Wednesday.
  • The US CPI and the Federal Reserve’s rate decision on Wednesday.
    Upcoming Events:
  • The G-7 leaders summit is scheduled for June 13-15.
  • Eurozone industrial production data will be released on Thursday.
  • The US Producer Price Index (PPI) and initial jobless claims data will also be released on Thursday.
  • Tesla’s annual meeting is scheduled for Thursday.
  • New York Fed President John Williams will moderate a discussion with Treasury Secretary Janet Yellen on Thursday.
  • The Bank of Japan will announce its monetary policy decision on Friday.
  • Chicago Fed President Austan Goolsbee is scheduled to speak on Friday.
  • US University of Michigan consumer sentiment data will be released on Friday.

Market Movements:

Stocks:

  • As of 11:51 a.m. Tokyo time, S&P 500 futures have fallen by 0.1%.
  • Nikkei 225 futures have risen by 0.4%.
  • Japan’s Topix index has risen by 0.2%.
  • Australia’s S&P/ASX 200 has fallen by 1.5%.
  • Hong Kong’s Hang Seng has fallen by 1.6%.
  • The Shanghai Composite has fallen by 1%.
  • Euro Stoxx 50 futures have risen by 0.2%.

Currencies:

  • The Bloomberg Dollar Spot Index has remained relatively unchanged.
  • The euro has remained relatively unchanged at $1.0768.
  • The Japanese yen has fallen by 0.1% to 157.25 per dollar.
  • The offshore yuan has remained relatively unchanged at 7.2666 per dollar.

Cryptocurrencies: [No information provided]
Bitcoin experienced a 1.9% drop, reaching a price of $68,253.38. Similarly, Ether saw a 1.8% decline, settling at $3,604.25.

In the bond market, the yield on 10-year Treasuries fell by two basis points to 4.45%. Conversely, Australia’s 10-year yield increased by nine basis points.

Moving on to commodities, West Texas Intermediate crude oil dropped by 0.2%, reaching $77.60 per barrel. Meanwhile, spot gold experienced a 0.4% decrease, settling at $2,301.49 per ounce.

This article was generated using Bloomberg Automation and received assistance from Jeanny Yu.

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