Stocks Fall on China Economy Worries; Bonds Gain: Markets Wrap

admin May 31, 2023

(Bloomberg) — China’s economic woes reverberated beyond the country’s domestic markets on Wednesday, with European and Asian stocks falling along with US equity futures, while bonds gained.

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Hawkish comments from Federal Reserve officials added to headwinds for stocks after a rally on Wall Street, fueled by excitement over artificial intelligence, fizzled on Tuesday. Treasury yields fell and a gauge of the dollar gained for the first time in four days.

The Stoxx Europe 600 index headed for its lowest close since March, with China-exposed luxury-goods makers LVMH and Richemont among the biggest laggards. Swedish landlord SBB plunged as much as 11% to an all-time low after its CEO said his holding company had deferred interest payments on a loan. Heineken NV fell after Mexican bottler Femsa sold its stake in the Dutch brewer.

An Asian equity gauge headed toward a two-month low after China reported the softest reading in its purchasing managers’ index since December. Hong Kong’s Hang Seng Index fell more than 2%, with a bear market on the horizon. The offshore yuan hit its weakest level versus the dollar in six months.

Stocks have received some support from progress in US debt-ceiling talks and developments in artificial intelligence. But with a debt deal close to being sealed, investors are focusing on inflation, economic growth and the path for interest rates, amid concern that renewed bill sales by the Treasury Department will suck liquidity from other markets. China’s uneven recovery is adding to worries about prospects for corporate earnings, especially in Europe.

Copper extended its worst monthly loss in almost a year and iron ore fell further below $100 a ton, as China’s slowing manufacturing raised concerns about demand from the top metals-consuming economy.

The euro slumped to a two-month low against the dollar after French inflation eased more than anticipated, reaching its lowest level in a year. Data from Germany’s states also signaled inflation may be falling more quickly than expected in the region’s biggest economy.

Money-market traders trimmed bets on the path of future European Central Bank interest-rate increases and are no longer fully pricing another 50 basis points of hikes this year. German bonds rallied, with two- and five-year yields falling as much as 10 basis points.

AI Exuberance

In Tuesday’s trading in the US, the Nasdaq 100 added 0.4% to extend this year’s surge to 31%. Yet it ended off its high for the day as investors assessed the artificial-intelligence hype that’s boosted the index. Nvidia Corp. hovered near $1 trillion in value after announcing several AI-related products.

AI-related software providers now stand to reap the benefits that Nvidia has laid, according to Cathie Wood, CEO and founder of Ark Investment Management. “For every dollar of hardware that Nvidia sells, software providers, SaaS providers will generate eight dollars in revenue,” she said on Bloomberg Television.

Investors also remain focused on the debt-limit deal forged by President Joe Biden and House Speaker Kevin McCarthy. The bill is heading for a House vote Wednesday after clearing a crucial procedural hurdle with just days remaining to avoid a US default. Congress is racing to pass the measure before June 5, the date when Treasury Secretary Janet Yellen has warned the US risks default.

Meanwhile, Federal Reserve Bank of Richmond President Thomas Barkin said he is looking for signs that demand is cooling to be convinced that US inflation will ease. His Cleveland counterpart Loretta Mester said she sees no “compelling reason” to pause interest-rate increases, particularly in the wake of the debt-limit deal.

Fed officials raised the central bank’s benchmark rate above 5% earlier this month and signaled they may be ready to pause the rapid tightening campaign they began last year. Stronger-than-expected economic data since then have built market expectations for another rate hike in June.

Key events this week:

US job openings, Wednesday
Federal Reserve’s Beige Book, Wednesday
Fed’s Patrick Harker, Susan Collins and Michelle Bowman speak at events, Wednesday
China Caixin manufacturing PMI, Thursday
Eurozone HCOB Eurozone Manufacturing PMI, CPI, unemployment, Thursday
US construction spending, initial jobless claims, ISM Manufacturing, Thursday
ECB President Christine Lagarde speaks at conference, Thursday
Fed’s Patrick Harker speaks at webinar, Thursday
US unemployment, nonfarm payrolls, Friday

Some of the main moves in markets:

Stocks

The Stoxx Europe 600 fell 0.2% as of 9:24 a.m. London time
S&P 500 futures fell 0.2%
Nasdaq 100 futures fell 0.3%
Futures on the Dow Jones Industrial Average fell 0.2%
The MSCI Asia Pacific Index fell 1.3%
The MSCI Emerging Markets Index fell 0.9%

Currencies

The Bloomberg Dollar Spot Index rose 0.3%
The euro fell 0.6% to $1.0671
The Japanese yen was little changed at 139.69 per dollar
The offshore yuan fell 0.4% to 7.1221 per dollar
The British pound fell 0.4% to $1.2363

Cryptocurrencies

Bitcoin fell 2.2% to $27,169.62
Ether fell 1.8% to $1,870.49

Bonds

The yield on 10-year Treasuries declined three basis points to 3.65%
Germany’s 10-year yield declined nine basis points to 2.25%
Britain’s 10-year yield declined seven basis points to 4.17%

Commodities

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Winnie Hsu, Tassia Sipahutar and Eva Szalay.

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