China Stocks Fall on Less-Than-Expected Support: Markets Wrap

(Bloomberg) — Chinese stocks fell after banks cut a short-term loan rate by less than expected, even after policymakers called for more lending. Equities in the region traded mixed.

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The Hang Seng Index declined as much as 1.8% and headed for its lowest close since November. Shares in mainland China also extended their drops into a second day, with finance stocks among the worst performers, while benchmarks in Japan and South Korea gained. Contracts for US equities edged higher.

Chinese lenders cut the one-year loan prime rate by 10 basis points and kept the five-year prime loan rates unchanged. Traders had expected a 15-basis-point cut on both rates. The central bank and financial regulators had met with bank executives last week and told lenders again to boost loans, adding to signs of heightened concern about the economic outlook.

“The surprising hold of five-year LPR is inconsistent with the overall policy tone of property bailout,” Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd., said on the loan rates. “The policy message of this LPR hold will confuse the market and dilute the sentiment impact.”

The disappointing loan rates data added to investor worries on China’s weak economic recovery and its impact on other markets. Cost to protect Asia ex-Japan’s investment-grade dollar bonds against default now heads for its longest stretch of increases in more than two years.

Renewed property contagion concerns led Goldman Sachs Group Inc. to lower its full-year earnings-per-share growth estimate for MSCI China to 11% from 14%. It also reduced its 12-month index target from 70 to 67, implying 13% returns over the next 12 months.

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“Until more forceful policy responses are made available to backstop the contagion risk, we believe Chinese stocks will settle in a lower trading range than we previously envisaged,” Goldman equity strategists, including Kinger Lau and Timothy Moe, wrote in a note.

Meanwhile, the offshore yuan extended its weakness against the greenback. The People’s Bank of China had earlier set the daily reference rate for the yuan at a level stronger than the average estimate in a Bloomberg survey.

A gauge of dollar strength traded little changed, following small losses Thursday and Friday that trimmed its five weeks of gains. Treasury yields rose, with the 10-year approaching the highest level since November 2007.

Awaiting Powell

While concerns of an imminent recession are fading, wary investors are instead facing entrenched inflation and the prospect of more policy tightening ahead of the annual Jackson Hole, Wyoming, event on Thursday and Friday, which features speakers including Federal Reserve Chair Jerome Powell and his European counterpart President Christine Lagarde.

Powell is expected to strike “a more balanced tone in Wyoming, hinting at the tightening cycle’s end while underscoring the need to hold rates higher for longer,” according to Anna Wong at Bloomberg Economics.

In another sign of nervousness, the Cboe Volatility Index climbed above 18 intraday on Friday, touching the highest level since May. Bank of America Corp.’s Michael Hartnett warned that stocks may drop another 4%, given China’s economic turmoil and the jump in bond yields.

Meanwhile, US equities gained some ground in the final minutes of Friday’s session in moves likely exacerbated by the monthly options expiration, but it wasn’t enough to prevent the S&P 500 ending nearly even and the Nasdaq 100 inching down. MSCI Inc.’s global equities benchmark notched its biggest weekly loss since the March meltdown of Silicon Valley Bank.

American megacap tech stocks recorded their third straight weekly drop last week, the longest such streak this year, as fears of higher global interest rates weigh on sentiment while bonds bounce off multiyear lows.

Elsewhere, oil rose after suffering from its first weekly loss since June and gold ticked higher.

Key events this week:

• US existing home sales, Tuesday

• Chicago Fed’s Austan Goolsbee speaks, Tuesday

• Eurozone S&P Global Services & Manufacturing PMI, consumer confidence, Wednesday

• UK S&P Global / CIPS UK Manufacturing PMI, Wednesday

• US new home sales, S&P Global Manufacturing PM, Wednesday

• US initial jobless claims, durable goods, Thursday

• Kansas City Fed’s annual economic policy symposium in Jackson Hole begins, Thursday

• Japan Tokyo CPI, Friday

• US University of Michigan consumer sentiment, Friday

• Fed Chair Jerome Powell, ECB President Christine Lagarde to address Jackson Hole conference, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 12:40 p.m. Tokyo time. The S&P 500 was little changed Friday

• Nasdaq 100 futures rose 0.1%. The Nasdaq 100 fell 0.1%

• Japan’s Topix rose 0.6%

• Australia’s S&P/ASX 200 fell 0.2%

• Hong Kong’s Hang Seng fell 1.3%

• The Shanghai Composite fell 0.4%

• Euro Stoxx 50 futures rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0882

• The Japanese yen was little changed at 145.46 per dollar

• The offshore yuan fell 0.2% to 7.3218 per dollar

• The Australian dollar was little changed at $0.6405

Cryptocurrencies

• Bitcoin fell 0.6% to $26,083

• Ether fell 0.7% to $1,677.72

Bonds

• The yield on 10-year Treasuries advanced two basis points to 4.27%

• Japan’s 10-year yield advanced 1.5 basis points to 0.640%

• Australia’s 10-year yield advanced two basis points to 4.25%

Commodities

• West Texas Intermediate crude rose 0.9% to $82.02 a barrel

• Spot gold rose 0.1% to $1,892.07 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Brett Miller, Qizi Sun and Ameya Karve.

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