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Stocks Extend Fall in China; Lowest Yuan Nears Year: Markets Wrap

(Bloomberg) — Chinese stock selling deepened Monday as a slump in the country’s real estate dampened market sentiment while weak economic data weighed on the yuan.

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A gauge of Asian stocks is set for its lowest close since June as stocks fell across the region. Stocks fell in mainland China while the 80-member Hang Seng index in Hong Kong fell. The CSI 300 Index, the benchmark for Chinese inland stocks, is now close to erasing all the gains it made after last month’s Politburo meeting amid signs of deterioration in the economy. US stock futures erased earlier gains to trade lower.

Country Garden Holdings, once China’s largest private developer by sales, has been in the spotlight as the company runs the risk of joining a slew of defaulters if it fails to make coupon payments on a dollar bond within a 30-day grace period. Its shares fell as much as 16% in Hong Kong on Monday, after closing below HK$1 for the first time ever last week.

The picture also looks bleak in the national currency as economic data continued to disappoint. The offshore yuan has been hovering near its weakest level this year and is among the worst performing currencies in Asia in a year now.

Investors aren’t currently pricing the prospect that Chinese officials will come up with the toolset needed to improve the situation, according to Lian Wang, chief emerging markets and China strategist at Alpine Macro Inc.

“There is a lot of pessimism out there,” he said on Bloomberg Television. It is clear that some developers are trading at very low levels. So the market is not pricing that in.”

Recent data shows that bank loans in China fell to a 14-year low, both consumer and producer prices fell, and exports fell by the most since February 2020. Adding to the concern is the news that one of China’s largest private wealth managers has missed out. Payments on investment products have been sold to the country’s high-net-worth clients and companies, raising fears of more defaults in such products.

Eyes on Elaine’s intervention

Meanwhile, the yen stabilized after breaching its highest level of the year at 145.07 against the dollar as investors began watching for any signs that the government might intervene as it did last year. The currency weakness came as the dollar strength index advanced over the past four weeks as treasury yields rose.

“We think the MOF will start to ease in the 145-148 range,” Joy Qiu, head of Asia market research at HSBC Holdings Plc, said of possible intervention by Japan’s Ministry of Finance in a note. “But if this does not happen, short positions in the yen are likely to be rebuilt further.” Chiu added that errors in Japan’s inflation and economic growth data this week may also encourage bears.

Treasuries extended declines after U.S. producer prices rose more-than-expected on Friday, threatening to help keep interest rates higher for longer.

“Exaggerated”

Friday’s US trading session saw the tech giants drop, and mixed economic data left stocks weak and struggling for direction. In choppy trading, the S&P 500 closed at a one-month low with a drop of just 0.1%. The Nasdaq 100 posted its longest weekly losing streak this year, hovering around 15,000. Nvidia Corp. — which more than tripled in 2023 — extended its four-day decline to 10%.

One-time bond king Bill Gross said the stock and Treasury bulls are wrong because both markets are “overvalued.” The former chief investment officer of Pacific Investment Management Co. told Bloomberg Television that the fair value of the 10-year Treasury yield is about 4.5%, compared to the current level of 4.15%.

Friday’s economic reports did little to change swap market bets that the Federal Reserve will stop raising interest rates next month. Traders also continued to expect the central bank to signal that its fight against inflation is far from over.

However, economists at Goldman Sachs Group Inc. That the Fed will start cutting interest rates by the end of next June, with a gradual quarterly pace of cuts starting from that point.

Oil fell amid a shift away from risk assets driven by concerns about China. Gold settled near its lowest level since early July.

Main events this week:

  • China’s medium-term lending, retail sales, industrial production, fixed asset investment, net foreign exchange settlement, Tuesday
  • Japanese Industrial Production, GDP, Tue
  • UK Unemployment Claims, Unemployment, Tue
  • US retail sales, manufacturing empire, business stocks, cross-border investing, Tuesday
  • Minutes from the Reserve Bank of Australia’s monetary policy meeting, Tuesday
  • Minneapolis Federal Reserve Bank President Neel Kashkari speaks on Tuesday
  • Real estate prices in China, Wed
  • Eurozone Industrial Production, GDP, Wed
  • UK CPI, Wed
  • FOMC Meeting Minutes, New Housing, Industrial Production, Wed
  • US Initial Jobless Claims, Conf. The board’s leading indicator, Thursday
  • Eurozone CPI, Friday
  • Japanese CPI, Friday

Some of the major movements in the markets:

Stores

  • S&P 500 futures were down 0.3% as of 1:08 p.m. Tokyo time. The S&P 500 fell 0.1% on Friday
  • Nasdaq 100 futures fell 0.3%. The Nasdaq 100 fell 0.7%.
  • Japan’s Topix fell 1%.
  • Australia’s S&P/ASX 200 fell 0.9%
  • Hong Kong’s Hang Seng fell 2.4%
  • The Shanghai Composite Index fell 1%.
  • Euro Stoxx 50 futures fell 0.4%

currencies

  • The Bloomberg Spot Dollar Index rose 0.2%.
  • The euro fell 0.1 percent to $1.0933
  • The Japanese yen was little changed at 144.92 per dollar
  • The offshore yuan fell 0.2 percent to 7.2747 per dollar
  • The Australian dollar fell 0.5% to $0.6466

Digital currencies

  • Bitcoin fell 0.1% to $29,365.95
  • Ether fell 0.4% to $1,845.62

bonds

  • The yield on the 10-year Treasury note advanced 1 basis point to 4.17%.
  • The 10-year Japanese bond yield advanced three basis points to 0.615%.
  • The 10-year Australian bond yield advanced eight basis points to 4.19%.

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This story was produced with help from Bloomberg Automation.

– With assistance from Brett Miller and Wenjin Lv.

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