Marketmind: Peak Inflation?

A look at the day ahead from Tommy Wilkes.

Wednesday’s 0.5% reading for the consumer price index in July was the largest drop in month-to-month inflation in 15 months and has some investors starting to bet long-feared inflation on the back of pandemic-era stimulus may be peaking. U.S. Treasury yields fell, erasing some of this month’s surge.

The reading certainly eases pressure on the Federal Reserve by supporting its assertion than inflation rises are temporary and gives the central bank more time to decide when to taper asset purchases. It also gives ammunition to bulls determined to push stocks higher.

On Thursday markets looked set to take a breather, with both U.S. and European stock futures flat or down slightly.

U.S. 10-year Treasury yields held above 1.3% — while inflation fears may be receding for now, the benchmark yield is still nearly 20 basis points higher than in early August.

Elsewhere, data showed that Britain’s economy grew by a faster-than expected 1.0% in June, boosted by the huge services sector.

The mood in Asia, where stocks have underperformed U.S. and European peers recently, was downbeat again after China said it would draft new laws on national security, technology innovation, monopolies and education, as well as in areas involving foreigners — the latest regulatory crackdown.

Fears about the spread of the COVID-19 Delta variant in Asia have also sapped confidence, with stocks lower on Thursday.

In currency markets, the dollar recouped some of Wednesday’s tumble after the lower inflation reading.

Oil prices mostly held gains from earlier in the week, with Brent firmly above $71 a barrel and U.S. crude at $69.

In corporate news, German online takeaway food firm Delivery Hero raised its 2021 outlook after more than doubling quarterly revenues.

Aviva Investors said it would return at least 4 billion pounds ($5.5 billion) to shareholders after a rise in profits — the latest European firm to return to buybacks.

Key developments that should provide more direction to markets on Thursday:

– Emerging markets: Mexico, Turkey, Serbia,  Philippines, Peru central banks meet

– U.S. PPI/initial jobless claims data

– Auctions: 4-week T-bills, 30-year Treasuries

– U.S. earnings: Baidu, Walt Disney, Uber

– European earnings: Deutsche Telekom. Henkel, freenet. TUI, RWE, Aviva, Cineworld

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Tommy Wilkes; Editing by Dhara Ranasinghe)

Stocks Hit Record Highs as Fed Tapering Concerns Ease

The data showed tentative signs inflation had peaked as supply-chain disruptions work their way through the U.S. economy.

“This is a more moderate reading than expected, especially on the core,” said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.

Speculation is growing that Fed Chair Jerome Powell will signal timings on tapering stimulus at a meeting of central bankers in Jackson Hole, Wyoming, on Aug. 26-28.

Stronger-than-expected inflation data may have fueled talk of an imminent slowing of the Fed’s bond purchases, said Craig Erlam, senior market analyst at OANDA Europe.

“Instead, we can all breathe a little easier, albeit safe in the knowledge that tapering is still coming and it’s likely to be announced next month,” he said.

U.S. nonfarm payrolls figures due in September could also influence tapering if they are particularly strong.

The MSCI all-country index, a gauge of stocks across the globe, hit a record high and was last trading up 0.29%.

The Dow Jones Industrial Average and S&P500 both closed at record highs, with sentiment boosted by U.S. lawmakers approving a trillion-dollar infrastructure package on Tuesday.

The Dow Jones Industrial Average rose 220.23 points, or 0.62%, to 35,484.9, the S&P 500 gained 11.02 points, or 0.25%, to 4,447.77 and the Nasdaq Composite dropped 22.95 points, or 0.16%, to 14,765.14.

European shares also hit record highs, clocking their longest winning streak in two months. The STOXX 600 index rose 0.4% to hit an all-time high for an eighth consecutive session.

OIL GAINS, TREASURY YIELDS FALL

Oil gained on Wednesday, changing course after the Biden administration said it would not call on U.S. producers to increase crude output, and that efforts to increase OPEC production were a longer-range plan.

U.S. crude oil futures settled at $69.25 per barrel, up 96 cents or 1.41%. Brent crude futures settled at $71.44 per barrel, up 81 cents or 1.15%.

U.S. Treasury yields fell in choppy trading, following a strong 10-year note auction; 10-year yields fell from four-week peaks earlier in the session.

Benchmark 10-year notes rose 4/32 in price to yield 1.3287%, down from 1.342% late on Tuesday.

The dollar index fell 0.198%, with the euro up 0.2% to $1.1742.

Gold prices jumped following the inflation data.

U.S. gold futures settled up 1.2% at $1,753.30.

Spot gold added 1.4% to $1,752.25 an ounce. U.S. gold futures gained 1.26% to $1,750.50 an ounce.

Asian shares had slipped as fears about further waves of the coronavirus dampened a positive lead from Tuesday’s record close on Wall Street.

MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.3%.

The Delta variant of the new coronavirus is spreading quickly in many Asian countries, raising fears about local restrictions on travel and other activity damaging the economic recovery.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Matt Scuffham; additional reporting by Lindsay Dunsmuir in Washington; editing by Mark Heinrich, Nick Zieminski and Jonathan Oatis)

Stocks Strengthen; Yields, Dollar Rise on Fed Taper Talk

The dollar also scaled a four-month high versus the euro as investors looked ahead to U.S. inflation numbers on Wednesday for indications of when the world’s largest economy might start to withdraw stimulus.

MSCI’s gauge of stocks across the globe gained 0.16%, trading just off the record high it hit last week.

The Dow Jones Industrial Average and S&P 500 both touched record intraday highs.

The Dow Jones Industrial Average rose 171.08 points, or 0.49%, to 35,272.93, the S&P 500 gained 6.27 points, or 0.14%, to 4,438.62, and the Nasdaq Composite dropped 64.83 points, or 0.44%, to 14,795.34.

European shares extended gains for a seventh straight session as investors took comfort from strong earnings reports and economic recovery prospect.

The pan-European STOXX 600 index rose 0.35%

“Domestically and globally, we’re seeing economies recovering from the pandemic. It’s a good period for investing,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.

Sentiment was further boosted by the U.S. Senate passing a $1 trillion bipartisan infrastructure bill that could provide the United States with its biggest investment in decades in roads, bridges, airports and waterways.

Activity, meanwhile, was heating up in bond markets.

Indications in recent days of an improving labor market have prompted investors to rethink the outlook for U.S. monetary policy, halting recent sharp falls in both U.S. and European bond yields.

U.S. 10-year Treasury yields scaled their highest in over three weeks, rising as high as 1.336% in London trade and extending the longest run of gains since early February.

The benchmark 10-year Treasury yield, which reached 1.346%, its highest level since July 15, last fell 8/32 in price to yield 1.3439%, from 1.317% late on Monday.

Speculation is mounting that Federal Reserve Chair Jerome Powell could signal it is ready to start easing monetary support in a speech to be delivered at the annual Jackson Hole conference of central bankers.

“Expectations have clearly shifted for Fed Chair Powell to turn hawkish at Jackson Hole and make a formal announcement on tapering asset purchases at the September FOMC meeting,” said Ed Moya, senior market analyst at OANDA in New York.

Adding fuel to the debate, two Fed officials said on Monday that while the labor market still has room for improvement, inflation is already at a level that could satisfy one leg of a key test for the beginning of interest rate hikes.

Data on Monday showed that U.S. job openings shot up to a fresh record high in June and hiring also increased.

That followed Friday’s nonfarm payroll report showing jobs increased by a larger-than-anticipated 943,000 in July.

While signs of economic recovery in the United States are reviving reflation trade bets, investors remain wary of the lingering risks posed by COVID-19.

China on Monday reported more COVID-19 infections in what seems to be its most severe resurgence of the disease since mid-2020, as some cities added rounds of mass testing in a bid to stamp out infections.

MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.4% after trading much of the day in the red as worries weighed about the spread of the Delta variant.

With tapering expectations gaining traction, the dollar extended its gains made on Friday and Monday.

The dollar index rose 0.07%, with the euro down 0.13% to $1.1722.

Oil prices rose, recouping some of the losses in the previous session when prices slipped to a three-week low. [O/R]

U.S. crude oil futures settled at $69.29 per barrel, up $1.81 or 2.72%. Brent crude futures settled at $70.63 per barrel, up $1.59 or 2.3%.

U.S. gold futures settled up 0.3% at $1,731.70.

For a look at all of today’s economic events, check out our economic calendar.

(Additional reporting by Paulina Duran in Sydney Editing by Jonathan Oatis and Mark Heinrich)

 

 

Stocks Marginally Higher as Gold, Oil Declines Spook Sentiment

European shares ticked slightly higher after a mixed start in early trading, as a fall in commodity prices weighed on Britain’s blue-chip index, while other regional indexes stayed near recent highs with earnings season winding down.

The pan-European STOXX 600 index rose 0.06% by 11:35 GMT, after having spent most of the morning in negative territory. Britain’s FTSE 100 index dipped 0.3% and Germany’s DAX 30 edged 0.1% lower.

MSCI’s All Country World Index, which tracks shares across 49 countries, was marginally higher, up 0.06% on the day.

Nasdaq futures slipped 0.1% and S&P 500 futures 0.2%.

Markets were shaken early by a sudden dive in gold, as a break of $1,750 triggered stop-loss sales to take it as low as $1,684 an ounce. It was last down 1% at $1,745.

Brent also sank 2% on concerns the spread of the Delta variant of the coronavirus could temper travel demand.

Holidays in Tokyo and Singapore made for thin trading conditions, adding to the volatility. Yet after an initial fall, MSCI’s broadest index of Asia-Pacific shares outside Japan recovered to be up 0.1%.

They were helped by China’s blue-chip index which added 1.3%. Japan’s Nikkei was shut but futures were trading a modest 20 points below Friday’s close.

Chinese trade data out over the weekend undershot forecasts, while figures out Monday showed inflation slowed to 1% in July, offering no barrier to more policy stimulus.

The U.S. Senate came closer to passing a $1 trillion infrastructure package, though it still has to go through the House.

Investors were still assessing whether Friday’s strong U.S. payrolls report would take the Federal Reserve a step nearer to winding back its stimulus.

“What we’re seeing is a little bit of early profit-taking on the back of fear that tapering will come in earlier in September,” said Sebastien Galy, senior macro strategist at Nordea Asset Management. “But as you can see, it has little impact because the effect of a better economy far outweighs the substitution effect of higher interest rates.”

LONGER TAPER

However, the pace of tapering was still up in the air and would decide when an actual rate increase comes, he said. The Fed is buying $120 billion of assets a month, so a $20 billion taper would end the programme in six months while a $10 billion tapering approach would take a year.

The spread of the Delta variant could argue for a longer taper, with U.S. cases back to levels seen in last winter’s surge with more than 66,000 people hospitalised.

Figures for July CPI due this week are also expected to confirm inflation has peaked, with prices for second-hand vehicles finally easing back after huge gains.

Four Fed officials are speaking this week who will no doubt offer enough grist for markets looking for clues on the timing of tapering.

In the meantime, stocks have been mostly underpinned by a robust U.S. earnings season. BofA analysts noted S&P 500 companies were tracking a 15% beat on second-quarter earnings with 90% having reported.

“However, companies with earnings beats have seen muted reactions on their stock price the day following earnings releases, and misses have been penalized,” they wrote in a note.

“Guidance is stronger than average but consensus estimates for two-year growth suggest a slowdown amid macro concerns.”

Financials firmed on Friday as a steeper yield curve is seen benefiting bank earnings, while also penalising the tech sector where valuations are sky high.

Yields on U.S. 10-year notes were up at 1.28% in the wake of the jobs report, having last week hit their lowest since February at 1.177%.

That jump gave the dollar a broad lift and knocked the euro back to $1.1760, and briefly to its lowest since April at $1.1740. The dollar likewise climbed to 110.22 yen and away from last week’s trough of 108.71.

That took the U.S. currency index up to 92.922 and nearer to the July peak of 93.194.

Oil prices eased further after suffering their largest weekly drop in four months amid worries coronavirus travel restrictions will threaten bullish expectations for demand.

Brent fell 3.7% to $68.09 a barrel, while U.S. crude lost 3.8% to $65.66.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Ritvik Carvalho; Additional reporting by Wayne Cole in Sydney; Editing by Robert Birsel and David Holmes)

 

 

Tech Stocks Boost Asia-Pacific Markets; China Services Sector Growth Accelerates

The major Asia-Pacific stock indexes finished mixed but mostly higher on Wednesday as investors shrugged-off worries over the rapidly spreading coronavirus Delta variant.

Although stocks in Japan finished lower, the other benchmarks were boosted by a private survey that showed accelerating Chinese services activity growth in July. Most indexes advanced to one-week highs with additional help from strong corporate earnings and successful global vaccine rollouts.

Cash Market Performance

On Wednesday, Japan’s Nikkei 225 Index settled at 27584.08, down 57.75 or -0.21%. Hong Kong’s Hang Seng Index finished at 26426.55, up 231.73 or +0.88% and South Korea’s KOSPI Index closed at 3280.38, up 43.24 or +1.34%.

In China, the benchmark Shanghai Index settled at 3280.38, up 43.24 or +1.34% and in Australia, the S&P/ASX 200 Index finished at 7503.20, up 28.70 or +0.38%.

China Shares Rise on Tech Bounce; Concerns over Virus Spread Cap Gains

A bounce back in tech shares lifted up China’s main stock indexes on Wednesday, as a private survey showed faster service sector growth, but worries over surging COVID-19 cases weighed on sentiment, keeping gains in check.

Tech shares rose across the board, with the CSI Info Tech sub-index gaining 2.42%. It fell 2.31% on Tuesday after a state media article described online games as “spiritual opium”. Tech shares recovered even as an opinion article in the ruling Communist Party’s official People’s Daily newspaper said that China should better protect minors from the dangers of the internet.

Providing some support for market sentiment, a private survey showed that growth in China’s services sector accelerated in July, helped by a recovery in consumption. But a surge in domestic COVID-19 cases remains a threat to the growth outlook. China reported the highest number of new locally transmitted cases since January on Wednesday.

South Korea Stocks End at 3-Week High on Strong Foreign Buying in Chip Sector

South Korean shares ended at a near three-week high on Wednesday, driven by strong foreign inflows into chip heavyweights, offsetting worries about rising cases of coronavirus’ Delta variant. Foreigners bought net 914.2 billion won ($799.58 million) worth of shares on the main KOSPI board, the largest daily amount since March 11.

South Korea posted a sharp increase in its coronavirus cases on Wednesday, nearing the record daily infections marked last week, as it struggled to tame its fourth wave of coronavirus.

Nikkei Dips on Delta Variant Anxiety, Toyota Slips after Earnings

Japanese shares dipped on Wednesday as concerns about the rapid spread of the Delta coronavirus variant kept investors on edge, while Toyota Motor succumbed to profit-taking after upbeat earnings.

Concerns about surging COVID-19 cases are mounting as the head of the Japan Medical Association called for a nationwide state of emergency.

Toyota Motor gave up 0.9% after the automaker reported a record quarterly operating profit but maintained its annual guidance.

For a look at all of today’s economic events, check out our economic calendar.

Asia-Pacific Stocks Finish Strong as China Shares Surge 2%; Aussie Index Sets Record Close on Afterpay Buyout

The major Asia-Pacific stock indexes finished higher on Monday, as factory data out of China came in well below expectations. Meanwhile, overall sentiment in the region was positive after last month’s weak performance, helped by a sharp rise in shares of Australia’s “buy now, pay later” giant, Afterpay.

In the cash market on Monday, Japan’s Nikkei 225 Index settled at 27781.02, up 497.43 or +1.82%. Hong Kong’s Hang Seng Index finished at 26235.80, up 274.77 or +1.06 and South Korea’s KOSPI Index closed at 3223.04, up 20.72 or +0.65%.

In China, the Shanghai Index settled at 3464.29, up 66.93 or +1.97% and in Australia, the S&P/ASX 200 Index finished at 7491.40, up 98.80 or +1.34%.

China Shares Up after Worst Month in Nearly 3 Years; Hong Kong Ends Higher

Chinese A-share posted their biggest percentage gain since late May on Monday, as investors snapped up stocks battered by a sell-off last month despite rising worries around a surge in new coronavirus cases.

Hong-Kong shares also rose, with the Hang Seng Index ending 1.06% higher after touching its lowest point since early November last month. Chinese H-shares listed in Hong Kong finished up 1.12%.

“Investors across the region are likely following participants buying the dip in Chinese stocks… plus the rise in domestic virus cases may leave further room for the PBOC to ease policy going ahead,” Margaret Yang, a Singapore-based strategist at IG said. “

In economic news, the Caixin/Markit Manufacturing PMI for July released Monday came in at 50.3, much lower than expectations by analysts in a Reuters poll for a reading of 51.1. The Caixin Manufacturing PMI figure had come in at 51.3 in June.

China’s official manufacturing PMI released over the weekend also showed factory activity growth slowing in July, with the figure for the month coming in at 50.4 versus June’s reading of 50.9.

Afterpay Lifts Australian Shares to Record Close

Australian stocks jumped to a record close on Monday, with buy-now, pay-later giant Afterpay leading the charge after it agreed to a $29 billion buyout by Jack Dorsey’s Square Inc in the country’s largest ever deal that also sent its peers higher.

Afterpay settled 19.5% higher after payments firm Square agreed to buy it, creating a global transactions giant and tapping an industry that has boomed over the past year.

Tech stocks jumped 6.5% in their best session since late March 2020, while financials rose 1.9% to their highest close since June 22, with all the “Big Four” banks in positive territory.

For a look at all of today’s economic events, check out our economic calendar.

Japan, South Korean Shares Pressured by Chinese Technology Crackdown, Renewed COVID-19 Concerns

The major Asia-Pacific stock indexes finished lower across the board on Friday, ending a mostly bearish week on a down note. The markets were rattled all week as a Chinese crackdown on its technology sector and rising cases of the Delta coronavirus variant raged against still-dovish monetary policy and mixed earnings from a range of companies.

Friday’s Cash Market Performance

In Japan, the Nikkei 225 Index settled at 27283.59, down 498.83 or -1.80%. In Hong Kong, the Hang Seng Index finished at 25961.03, down 354.29 or -1.35% and South Korea’s KOSPI Index closed at 3202.32, down 40.33 or -1.24%.

China’s benchmark Shanghai Index settled at 3397.36, down 14.37 or -0.42% and in Australia, the S&P/ASX 200 Index finished at 7392.60, down 24.80 or -0.33%.

Nikkei Ends at Over 6-Month Low on Virus Worries, Earnings Lag

Japan’s Nikkei stock average closed at its lowest since the start of the year on Friday as spiking COVID-19 cases, some earnings disappoints and a decline in U.S. stock futures dented investor sentiment.

The Nikkei’s 1.8% decline on Friday was its biggest decline since June 21 and the lowest close since January 6.

For the month, the Nikkei slumped 5.24%, its worst performance since the coronavirus-induced market meltdown in March last year, after recording an 11th straight decline on the final trading day of the month.

In COVID-related news, Japan’s government on Friday proposed extending the state of emergency through August 31 for Tokyo and some other prefectures, as COVID-19 cases spike to record highs.

“The earnings weren’t that bad, but in terms of the outlook, there doesn’t seem to be a lot of confidence,” which is weighing on stocks, said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.

“The market is wary that the Nikkei could break below 27,000.”

South Korea Stocks Post Worst Month Since March 2020 on Weak China Shares, Virus Woes

South Korean shares tumbled more than 1% on Friday, and posted its worst monthly decline in more than a year, weighed by continued worries about the Chinese government’s regulatory crackdown and the COVID-19 pandemic.

The KOSPI ended down 40.33 points, or 1.24%, at 3,302.32, its sharpest daily fall in more than two months. The index ended the month down 2.86%, its sharpest monthly decline since March last year, and snapped an eight month winning streak.

In economic news, Friday’s data showed South Korea’s factory output in June rebounded from May on a boost in semiconductor and car production.

In COVID-related news, South Korea reported 1,710 new cases for Thursday, still near the record infections marked this week, even after the country imposed the toughest distancing measures in the metropolitan Seoul area and some neighboring cities.

For a look at all of today’s economic events, check out our economic calendar.

Asia-Pacific Markets Called Higher on Opening as Investors Hope to Ride Wall Street’s Bullish Wave

A strong performance on Wall Street on Thursday and a rebound in Hong Kong the previous session following a steep plunge earlier in the week is expected to lead to stronger openings in the Asia-Pacific region on Friday.

In the U.S., the major stock indexes rose to record levels as investors shrugged off economic data pointing toward slower-than-expected growth. Investors also showed a delayed reaction to dovish news from the Federal Reserve the previous session.

Many investors were relieved that the Federal Reserve signaled no imminent plans for dialing back asset purchases. Fed Chairman Jerome Powell cautioned that although the economy is making progress towards its goals, it has a ways to go before the central bank would actually adjust its easy policies.

In economic news, U.S. second-quarter gross domestic product accelerated 6.5% on an annualized basis, considerably less than the 8.4% Dow Jones estimate.

Meanwhile, a separate data point showed that 400,000 people filed initial claims for unemployment benefits for the week ended July 24. That level is nearly double the pre-pandemic norm and above a Dow Jones estimate of 385,000.

Asia-Pacific Investors Hoping to Feed Off Wall Street’s Gains

Asia-Pacific investors are hoping to build on gains from Thursday fueled by a rebound in Hong Kong from a two-day slump earlier in the week and after the U.S. Federal Reserve left its benchmark interest rate near zero.

On Thursday, Hong Kong’s Hang Seng Index jumped 3.3% to close at 26,315.32. The index had dived more than 8% over two days early this week.

Meanwhile, Chinese tech stocks in Hong Kong, which were hit hard by the market rout earlier in the week, soared. Shares of Tencent jumped 10.02% while Alibaba gained 7.7% and Meituan climbed 9.49%. The Hang Seng Tech Index soared 8% to 6,958.77.

Helping to ease concerns in the region was the news that China’s securities regulators told brokerages late Wednesday that the country will allow Chinese firms to go public in the U.S. as long as they meet listing requirements, a source familiar with the matter told CNBC.

Traders should pay particular attention to the Australian stock market. Prices should firm because of strength in the energy and gold sectors due to strong gains on Thursday. Crude oil futures settled 1.41% higher. Gold futures posted a 1.54% gain.

For a look at all of today’s economic events, check out our economic calendar.

Asia Stocks Try Tentative Rally, Fed in No Rush to Taper

By Wayne Cole

There was also some promising news on the long-awaited U.S. infrastructure bill as the Senate voted to move ahead on the $1.2 trillion deal.

China’s markets edged higher amid reports regulators had called banks overnight to ease concerns about tighter rules on the education sector and on overseas listings.

“The message is that profit has not become a dirty word in the Chinese system of ‘Socialism with Chinese characteristics’, only in certain sectors,” said Ray Attrill, head of FX strategy at NAB.

“How successful the messaging by the authorities will be in putting a floor under the broader Chinese stock market remains to be seen.”

For now, gains were tentative with blue-chip shares up 1.6%, but still down 5% for the week so far, while the Shanghai Composite Index added 1.2%.

MSCI’s broadest index of Asia-Pacific shares outside Japan bounced 1.9%, having slid to its lowest since early December on Wednesday. Japan’s Nikkei edged up 0.6%, while South Korea was flat.

S&P 500 futures eased 0.1%, as did EUROSTOXX 50 futures. Nasdaq futures dipped 0.3% perhaps weighed by a retreat in Facebook stock.

Facebook Inc shed 3.5% after the company warned revenue growth would “decelerate significantly,” even as it reported strong ad sales.

Markets had see-sawed overnight when the Federal Reserve policy statement said “progress” had been made toward its economic goals, seeming to bring nearer the day when it might start tapering its massive asset buying campaign.

Data due later Thursday is expected to show the U.S. economy likely grew at the fastest pace in 38 years last quarter as government aid and vaccinations fuelled spending.

However, Fed Chair Jerome Powell took a dovish turn by emphasising that they were “some ways away” from substantial progress on jobs that is needed to start tapering.

“The difference in tone between the statement and press conference may simply reflect Powell being on the dovish side of the Committee,” said JPMorgan economist Michael Feroli.

“In any event, there are three more job reports before the November meeting, and two more between the November and December meetings,” he added. “We continue to expect a December announcement, though we see a risk it could occur in November.”

The next Fed meeting is not until late September, offering the market a break from tapering talk.

For bonds, the net result was that U.S. 10-year yields were steady at 1.24%, not far from recent five-month lows of 1.128%.

The pattern was the same for the dollar, which edged up on the FOMC statement only to flag on Powell’s remarks.

That left the euro up at $1.1855, and some way from its recent four-month trough of $1.1750.

The dollar faded to 109.75 yen, from a top of 110.58 early in the week. All of which saw the dollar index dip to 92.157, off its recent top at 93.194.

In commodity markets, gold nudged up to $1,815 an ounce but remains in the $30 range of the past 17 sessions.

Oil prices firmed after data showed U.S. crude inventories fell to pre-pandemic levels, bringing the market’s focus back to tight supplies rather than rising COVID-19 infections.

Brent was last up 26 cents at $75.00 a barrel, while U.S. crude added 28 cents to $72.67.

(Editing by Ana Nicolaci da Costa & Simon Cameron-Moore)

Asia Shares Sit at 2021 Lows Ahead of Fed Decision, China Steadies

By Alun John

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.91%, though markets in Hong Kong and mainland China saw milder losses after a sharp sell-off in the previous sessions.

U.S. stock futures, the S&P 500 e-minis, were down 0.26%, pan-region Euro Stoxx 50 futures dropped 0.11%, and FTSE futures fell 0.3%.

Asian shares have fallen in each of the three previous sessions as broadening regulatory crackdowns in China roiled stocks in the technology, property and education sectors, leaving international investors bruised.

Chinese state-run financial media urged calm on Wednesday morning, and while Chinese shares swung back and forth in early trading, they did not repeat the sharp plunges seen earlier in the week.

Chinese blue chips were last 0.46% lower, having had a volatile day, and the Hong Kong benchmark gave up early gains to fall 0.82%. Both were pinned around eight-month lows.

The embattled Hang Seng Tech Index also gave up early gains to fall 0.4%, a day after touching its lowest level since the index’s creation in July 2020. It is down over 40% from its February high.

Japan’s Nikkei slid 1.73%, with shares in SoftBank Group, a major investor in Chinese tech, falling 4.7%.

“China and the Fed are the two key things for today,” said Tai Hui, chief market strategist for Asia Pacific, at JPMorgan Asset Management.

“We are still trying to digest the news from China, what’s going to be new is how the Fed view the latest round of (COVID-19) infections and whether they need to readjust their view,” he said.

The statement from the Fed policy meeting is due at 2 p.m. EDT (1800 GMT), with a news conference by Chairman Jerome Powell expected a half hour later.

Markets will be watching closely for any hints on when the Fed will start reducing its purchases of government bonds and any fresh insight into its views on inflation and economic growth.

The declines in Asian equities on Tuesday spread to other markets overnight, causing Wall Street to retreat a little from the record highs set earlier in the week.

The Dow Jones Industrial Average ended Tuesday down 0.2%, the S&P 500 shed 0.5% and the Nasdaq Composite slid 1.2%. [.N]

After the U.S. close, Google parent Alphabet Inc, Microsoft, and Apple all reported record quarterly earnings, though the smartphone maker’s shares slid in after-hours trading on the back of a slower growth forecast.

In currency markets, things were fairly quiet in Asian trading hours, with the U.S. dollar sitting below recent highs after a month-long rally.

The safe-haven yen held onto earlier gains and the risk-sensitive Australian and New Zealand dollars dropped back, but while analysts at CBA attributed the earlier moves to falling risk sentiment on the back of the Chinese regulatory crackdown, they said market participants were now turning their attention to the Fed.

The yield on benchmark 10-year Treasury notes was little changed from the U.S. close at 1.236% compared to 1.234%.

Oil prices rose as industry data showed U.S. crude and product inventories fell more sharply than expected last week, outweighing worries that surging COVID-19 cases would curb fuel demand. U.S. crude rose 0.56% to $72.05 a barrel and Brent crude rose 0.36% to $74.81 per barrel. Gold strengthened, with spot prices above the key psychological level of $1,800, while Bitcoin rose around 1.3%, trading either side of $40,000.

(Editing by Ana Nicolaci da Costa and Kim Coghill)

Asia-Pacific Shares Called Mixed to Lower on Opening; Investors Hoping for US Tech Stock Bailout

The major Asia-Pacific stock indexes are called lower on Wednesday, following Wall Street’s weaker lead as the rout on Hong Kong and China tech stocks is expected to resume. Conditions could change ahead of the openings, however, if the U.S. markets can get back on track after key technology companies report their latest quarterly data after the U.S. close.

Shares in the Asia-Pacific region were mixed on Tuesday as the sell-off of major Chinese tech stocks in Hong Kong continued following Monday’s tumble. The broader Hang Seng Index in Hong Kong briefly fell more than 5% in Tuesday afternoon trading (local time) before paring some of those losses, eventually closing 4.22% lower at 25,086.43.

The Hang Seng Index is off more than 8% in just two days of trading this week. On Monday, it was also hit hard, falling more than 4% on the back of regulatory fears surrounding China’s technology and private education sector.

Wall Street Could Fuel Early Session Weakness in Asia-Pacific Region

U.S. stocks fell for the first time in six days on Tuesday ahead of quarterly earnings reports from several megacap technology companies. The blue chip Dow Jones Industrial Average decline 170 points. The benchmark S&P 500 Index fell 0.8%, led by weakness in consumer, technology and energy sectors. The NASDAQ Composite retreated 1.6%. The drop in the major averages from their respective records reached on Monday could bring an end to their five-session winning streaks.

Of concern for Asia-Pacific traders will be the U.S. market’s reaction after the closing bell in New York. Second-quarter earnings season will kick into high-gear with Google-parent Alphabet, Microsoft and Apple set to report after the bell on Tuesday. The trio of tech heavyweights is down about 1% each ahead of their numbers.

Fedwatch Continues

Investors are awaiting the Federal Reserve’s update on its monetary policy as the central bank’s two-day meeting began. The Federal Open Market Committee will release a statement when the meeting concludes Wednesday, followed by Chairman Jerome Powell’s news conference.

Since the Fed will make its announcements at 18:00 Wednesday, Asia-Pacific traders won’t have a chance to react to the news until Thursday’s opening.

Nikkei Closes Below 28,000 Level for Second Day

Japanese equities rose on Tuesday, tracking overnight gains on Wall Street as investors cheered upbeat corporate earnings, but the benchmark Nikkei 225 failed to close above the 28,000 key psychological level for a second straight session.

Like Monday, the Nikkei briefly traded above that level but pared gains before the close amid caution ahead of this week’s Federal Reserve policy meeting and a pick-up in both the U.S. and Japanese earnings seasons.

For a look at all of today’s economic events, check out our economic calendar.

China Jitters Drag Asian Stocks to Seven-Month Low

By Alun John

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.97% to its lowest level since December, having slid 2.45% the previous day.

The Hong Kong benchmark fell 2.84% on Tuesday, its third day of declines, with the Hang Seng Tech index down 6.46% to its lowest since its inception in July 2020. It has fallen around 14% in three days and has lost 41% from a February peak.

Big decliners included Meituan and Alibaba, whose shares fell 12.7% and 5.5% respectively. Both were down for the third successive day with investors expecting the companies’ food delivery arms to be affected by new regulations guaranteeing workers above minimum pay.

In onshore markets, Chinese bluechips dropped sharply in afternoon trading, falling 2.93% after closing at their lowest since December on Monday thanks to regulatory crackdowns in the education and property sectors.

“The market seems to be uncertain whether there will be more policy changes for fintech, social media platforms, delivery platforms and ride hailing platforms,” said Iris Pang, chief economist for Greater China at ING.

“Each has their own issue and faces different regulatory actions, so the market is looking for ‘which technology subsector will be next?'”

Elsewhere in Asia, investors were more optimistic, with Japan’s Nikkei rising 0.49%, and Australian shares closing up 0.46%.

Other markets were set to open lower with S&P 500 futures dipping 0.21%, Euro STOXX 50 futures down 0.09% and FTSE futures off 0.19%.

U.S. corporate earnings and the Fed’s monetary policy meeting were also on investors’ minds.

“It’s profits and the Fed. The next couple of days are going to be monumental as everyone tries to figure out how strong corporate fundamentals are at the moment and in what context that is happening in terms of the economic outlook and policy settings,” said Kyle Rodda, market analyst at IG Markets.

Alphabet Inc, Apple Inc and Microsoft Corp < MSFT.O> are set to publish quarterly results late on Tuesday, with Amazon.com Inc’s due later in the week.

In addition, the Fed will begins its two day meeting on Tuesday, with investors set to scrutinise a statement and press conference from Chair Jerome Powell due late Wednesday.

They will be looking to see how the central bank will balance fast-rising prices with the complication of increased coronavirus infections.

All three major U.S. stock indexes closed at record highs for a second straight session on Monday

However, the looming Fed meeting kept a dampener on major moves in other asset classes.

The dollar hovered around its recent peak during Asian hours, the Aussie dollar weakened and sterling gained amid worries about a worsening COVID-19 situation in Sydney, compared with a decline in new daily cases in the UK.

U.S. Treasury yields wobbled in Asian trading on Tuesday, following a choppy Monday, but ended little changed.

The yield on benchmark 10-year Treasury notes was last 1.2795% compared with its U.S. close of 1.276%, while the two-year yield touched 0.2134% compared with a U.S. close of 0.196%.

Gold was slightly lower, with the spot price trading at $1,794.5 per ounce, while U.S. crude ticked up 0.31% to $72.13 a barrel.

Bitcoin dropped to around $37,000 from a Monday peak of $40,581 after Amazon.com offered a qualified denial of a weekend news report that said it was preparing to accept cryptocurrencies.

(Reporting by Alun John; Editing by Lincoln Feast, Ana Nicolaci da Costa and Sam Holmes)

Asia-Pacific Shares Mostly Lower; Hong Kong Down Over 4%; Japan Bucks Trend with Modest Gain

The major Asia-Pacific stock indexes are trading mixed but mostly lower with Japanese stocks bucking the overall trend as investors returned following holidays on Thursday and Friday.

One of the catalysts behind the selling pressure was tensions between Washington and Beijing as the two economic powerhouses kicked off high-level meetings. Another reason for the shift in sentiment was heightened regulator pressure from the government on Chinese tech and education stocks. Additionally, investors continued to monitor the COVID situation in Asia, particularly its potential influence on the pace of the economic recovery.

Cash Market Performance

In the cash market on Monday, Japan’s Nikkei 225 Index settled at 27833.29, up 285.29 or +1.04%. Hong Kong’s Hang Seng Index finished at 26192.32, down 1129.66 or -4.13% and South Korean’s KOSPI Index closed at 3224.95, down 29.47 or -0.91%.

In China, the benchmark Shanghai Index settled at 3467.44, down 82.96 or -2.34% and in Australia, the S&P/ASX 200 Index finished at 7394.30, down -0.10 or 0.00%.

China Shares Tumble on Regulatory Clampdown; Education Firms Selloff Heavily

China shares fell sharply to their lowest levels this year on Monday as investor worries over the impact of government regulations kneecapped the education and property sectors, after Beijing barred for-profit tutoring in core school subjects.

The shakeout in China’s $120 billion private tutoring sector follows Beijing’s announcement on Friday of new rules barring for profit tutoring in core school subjects to ease financial pressures on families. The policy change also restricts foreign investment in the sector through mergers and acquisitions, franchises, or variable interest entity (VIEs) arrangements.

Hong Kong Stocks Fall as China Technology Crackdown Continues

Stocks in Hong Kong were pressured on Monday after China’s antitrust regulator ordered Tencent to give up its exclusive music licensing rights and slapped a fine on the company for anti-competitive behavior, as Beijing continues to crack down on its internet giants at home.

The latest regulatory crackdown comes as Beijing continues to curb the power of its domestic technology firms that have grown to become some of the most valuable companies in the world.

China’s widening clampdown has ranged from anti-competitive practices, to data security as well as increased scrutiny on Chinese companies with overseas listings in the U.S.

Nikkei Tracks Global Peers Higher, but Virus Woes Undermine Mood

Japanese shares ended higher on Monday, catching the tailwind from a bounce in global peers on positive corporate earnings, though gains were curbed by concerns that domestic COVID-19 infections could further dampen the country’s economic recovery.

The country’s benchmark Nikkei 225 Index rose after a four-day weekend that marked the opening of Tokyo Olympics before shedding a part of the gains into the close.

Australia Shares End Flat as Energy, Gold Stocks Drag

Australian shares pulled back from record highs to end flat on Monday as gains in mining stocks were offset by losses in energy and gold stocks, while rising domestic coronavirus cases also added to investor worries.

Mining stocks jumped as much as 1.5%, boosted by strong iron ore prices as a recovery in steel margins in China buoyed sentiment. Meanwhile, energy stocks dropped 1.4% as oil prices fell on concerns about fuel demand from the spread of COVID-19 variants and floods in China. Finally, gold stocks fell to their lowest since April 7, hurt by weak bullion prices, with the largest-listed gold miner Newcrest losing 1.5%.

In COVID-related news, the most populous state of New South Wales, home to Sydney, on Monday reported a rise in fresh COVID-19 cases despite an ongoing stay-at-home order.

For a look at all of today’s economic events, check out our economic calendar.

Asia Stocks Hit 2021 Lows as China Skids, Funds Favour Wall St

By Wayne Cole

Chinese blue chips shed 4.4% to their lowest since December, in what was also the biggest daily decline in more than a year, as the education and property sectors were routed on worries over tighter government rules.

“We believe China’s economy, and specifically its financial system, will face significant risks in coming months due to the unprecedented tightening measures applied to the property sector,” economists at Nomura warned in a note.

That dragged MSCI’s broadest index of Asia-Pacific shares outside Japan down 2.0% to its lowest since last December. Japan’s Nikkei did bounce 0.9%, but that was off a seven-month low.

In contrast, Nasdaq futures were off just 0.1% from historic highs, and S&P 500 futures were down 0.3%. EUROSTOXX 50 futures and FTSE futures both dipped 0.5%.

More than one-third of S&P 500 companies are set to report quarterly results this week, headlined by Facebook Inc, Tesla Inc, Apple Inc, Alphabet Inc, Microsoft Corp and Amazon.com.

With just over one-fifth of the S&P 500 having reported, 88% of firms have beaten the consensus of analysts’ expectations. That is a major reason global money managers have poured more than $900 billion into U.S. funds in the first half of 2021.

Oliver Jones, a senior markets economist at Capital Economics, noted U.S. earnings were projected to be roughly 50% higher in 2023 than they were in the year immediately prior to the pandemic, significantly more than was anticipated in most other major economies.

“With so much optimism baked in, it seems likely to us that the tailwind of rising earnings forecasts, which provided so much support to the stock market over the past year, will fade,” he cautioned.

The week is also packed with U.S. data that should underline the economy’s outperformance. Second-quarter gross domestic product is forecast to show annualised growth of 8.6%, while the Fed’s favoured measure of core inflation is seen rising an annual 3.7% in June.

The Federal Reserve meets on Tuesday and Wednesday and, while no change in policy is expected, Chair Jerome Powell will likely be pressed to clarify what “substantial further progress” on employment would look like.

“The main message from Fed Chair Powell’s post-meeting press conference should be consistent with his testimony before Congress in mid-July when he signalled no rush for tapering,” said NatWest Markets economist Kevin Cummins.

“However, he will clearly remind market participants that the taper countdown has officially begun.”

So far, the bond market has been remarkably untroubled by the prospect of eventual tapering with yields on U.S. 10-year notes having fallen for four weeks in a row to stand at 1.26%.

The drop has done little to undermine the dollar, in part because European yields have fallen even further amid expectations of continued massive bond buying by the European Central Bank.

The single currency has been trending lower since June and touched a four-month trough of $1.1750 last week. It was last at $1.1779 and looked at risk of testing its 2021 low of $1.1702.

The dollar has also been edging up on the yen to reach 110.40, but remains short of its recent peak at 111.62. The fall in the euro has lifted the dollar index to 92.870, a long way from its May trough of 89.533.

The rise in the dollar has offset the drop in bond yields to leave gold range-bound around $1,800 an ounce.

Oil prices have generally fared better amid wagers that demand will remain strong as the global economy gradually opens and supply stays tight.

The U.S. and European oil giants are expected to announce higher profits, cash and dividend payments this week.

Brent was trading down 73 cents at $73.37 a barrel, while U.S. crude fell 76 cents to $71.31.

(Editing by Sam Holmes and Edmund Klamann)

Asia-Pacific Shares Settle Mixed; China Down on Regulatory Concerns, Aussie Stocks Close at Record High

The major Asia-Pacific stock indexes closed mixed on Friday, but mostly higher with China and Hong Kong markets taking a hit on renewed regulatory concerns. Also contributing to the mixed mood following a volatile trading week was a drop in investor sentiment on rising concerns over the pace of global growth tied to the COVID Delta variant outbreak.

Cash Market Performance

In the cash market on Friday, Japan’s Nikkei 225 Index settled at 27548.00, up 159.84 or +0.58%. Hong Kong’s Hang Seng Index finished at 27321.98, down 401.86 or -1.45% and South Korea’s KOSPI Index closed at 3254.42, up 4.21 or +0.13%.

In China, the benchmark Shanghai Index settled at 3550.40, down 24.34, down 0.68% and in Australia, the S&P/ASX 200 Index finished at 7394.40, up 8.00 or +0.11%.

China Shares Fall amid Renewed Regulatory Fears

Chinese tech firms listed in the city tumbled after Bloomberg News reported that Beijing is considering harsh penalties on ride-hailing giant Didi. The penalties being planned range from a fine likely bigger than the record $2.8 billion Alibaba paid earlier this year to even a forced delisting after Didi’s IPO last month.

Shares of Didi stateside plunged more than 11% on Thursday. Earlier in July, the firm was forced to stop signing up new users and also had its app removed from Chinese app stores due to alleged collection and use of personal data.

That development came as Beijing continues its months-long crackdown on China’s tech behemoths, targeting issues from anti-trust to data regulations.

Hong Kong Stocks Fall as Tech, Education and Property Shares Drop

Hong Kong stocks fell on Friday, dragged down by technology, education and property shares, as deepening concerns over Beijing’s tighter regulations weighed on sentiment.

The Hang Seng Tech Index slumped nearly 3% to the lowest closing level since October, 2020.

New Oriental Education & Technology Group Inc’s Hong Kong-traded shares plunged 41% to a record low, amid deepening concerns over China’s crackdown on tutoring businesses.

China will crack down on after-school tutoring businesses and ban listings of tutoring institutions, according to a soft copy of government document circulating on social media. Reuters was unable to immediately verify its authenticity.

Hong Kong-listed property shares also fell as worries over tough regulations linger. Chinese local governments should strictly control financing for property developers, including bank loans and improve land pricing mechanisms, state television quoted Vice Premier Han Zheng as saying on Thursday.

Australian Shares End at Record High on Healthcare, Tech Boost

Australian shares closed at a record high after a choppy afternoon trade on Friday, as gains in healthcare and tech stocks slightly outweighed losses in financial and energy firms.

Healthcare stocks added 1.3% and led gains on the benchmark index. The closing marked a fourth positive finish in the past five sessions.

Australian tech stocks followed suit, firming nearly 1% on strong cues from their Wall Street peers overnight.

For a look at all of today’s economic events, check out our economic calendar.

Asian Shares Slip as New COVID Cases Rise

By Andrew Galbraith

But European share markets were set for a slightly higher open following sharp falls early in the week, ahead of a European Central Bank meeting on Thursday that is expected to convey a dovish tone.

Euro Stoxx 50 futures rose 0.16% and German DAX futures were up 0.07%. FTSE futures added 0.08%.

The Delta coronavirus variant has for the moment displaced inflation as investors’ primary source of concern, with South Korea on Wednesday reporting a daily record of new infections.

Last week, data showing a surge in U.S. consumer prices in June had sparked fears that the Federal Reserve could bring a quicker end to emergency stimulus measures.

The shift from a debate over whether price spikes are transitory to outright fear of the impact of the latest COVID-19 surge has pushed the U.S. 10-year yield down more than 20 basis points in the space of a week as investors have moved into safe haven assets. The S&P 500 slumped nearly 4% from highs last Wednesday to lows on Monday before rebounding.

On Wednesday, MSCI’s broadest index of Asia-Pacific shares outside Japan reversed early gains to slip 0.14%, extending losses for the week to more than 2%.

Seoul’s KOSPI slid 0.29% and Hong Kong’s Hang Seng index fell 0.46%.

Japan’s Nikkei was 0.6% higher after touching six-month lows a day earlier, as investors bought cyclical stocks ahead of a long weekend that will mark the start of the Tokyo 2020 Olympics and as a jump in exports in June boosted hopes for an export-led economic recovery.

Chinese blue-chip shares were also higher, up 0.81%

“The level of volumes, the level of sporadic whip-saw price action I think is telling you that there’s not a lot of conviction one way or another,” said Kay Van-Petersen, global macro strategist at Saxo Capital Markets in Singapore.

But while he said peak global growth had likely passed, easy central bank policies continue to provide strong support for global asset prices even as they begin to flag the tapering of asset purchases.

“The G4 central banks’ balance sheets have been compounding by 15% since 2008. And my point is that’s not going to stop. It’s not going to get shut off.”

U.S. Treasuries prices edged down, with the 10-year yield rising to 1.2151% from the previous day’s close of 1.209%. The 2-year yield was at 0.2037%, up from a close of 0.194%.

But echoing concern in equities markets over a surge in global COVID-19 infections, the dollar stayed near three-month highs on Wednesday.

“While some of the world is shrugging off rising infections as vaccination rates limit the severity of any symptoms of new cases, there are few parts of the world that can totally ignore this,” said Rob Carnell, Asia-Pacific chief economist at ING.

The dollar index was last up 0.08% at 93.041, with the euro down 0.07% to $1.1771. The dollar was 0.05% stronger against the yen at 109.89.

Oil prices resumed their decline after a rebound on Tuesday, as an industry report showed an unexpected build-up in U.S. oil inventories. [O/R]

U.S. West Texas Intermediate crude dropped 0.46% to $66.89 per barrel and Brent traded at $69.06 per barrel, down 0.42% on the day.

Spot gold shed 0.07% to $1,808.84 an ounce as U.S. yields rebounded.

(Reporting by Andrew Galbraith; Editing by Christopher Cushing and Kim Coghill)

Asia-Pacific Shares Follow Wall Street Lower; Nikkei Hits Six-Month Low on COVID Concerns

The major Asia-Pacific stock indexes finished sharply lower on Tuesday, following Wall Street’s lead after U.S. stock markets plunged the previous session. Fears over a COVID resurgence weighed on investor sentiment. Investors are concerned about the potential impact of the surge in infections on the global economic recovery.

Japan’s Nikkei ended at a 6-month low amid rising COVID-19 cases. South Korean stocks slid for a third day as virus woes sapped risk appetite. China shares edged lower as a key lending rate held steady and Australia shares extended losses as miners and energy stocks weighed on sentiment.

Cash Market Performance

In the cash market on Tuesday, Japan’s Nikkei 225 Index settled to 27388.16, down 264.58 or -0.96%. Hong Kong’s Hang Seng Index finished at 27259.25, down 230.53 or -0.84% and South Korea’s KOSPI Index closed at 3232.70, down 11.34 or -0.35%.

In China, the benchmark Shanghai Index settled at 3536.79, down 2.33 or -0.07% and in Australia, the S&P/ASX 200 finished at 7252.20, down 33.80 or -0.46%.

Japan’s Nikkei Ends at 6-Month Low Amid Rising COVID-19 Cases

Japan’s Nikkei share average fell to a six-month low on Tuesday, tracking a broad sell-off on Wall Street as concerns grew that rising coronavirus cases globally could derail a nascent economic recovery.

As COVID-19 cases rise in Tokyo, now under its fourth state of emergency, public concern has grown that hosting the Tokyo Olympics with tens of thousands of overseas visitors could accelerate infection rates in Japan’s capital and introduce variants that are more infectious or deadlier.

South Korean Stocks Slide for Third Day as Virus Woes Sap Risk Appetite

South Korean shares ended lower for a third straight session on Tuesday, as technology heavyweights tracked overnight losses on Wall Street over worries about surging coronavirus cases globally.

Chip giant Samsung Electronics fell as much as 0.76%, while peer SK Hynix slid 0.42%. Internet giant Naver and battery maker LG Chem also dropped 0.90% and 0.61%, respectively.

China Shares Edge Down as Key Lending Rate Kept Steady

China shares ended down on Tuesday after Beijing kept a benchmark lending rate unchanged despite growing expectations for a cut, while investor concerns over developer Evergrande affected the property sector.

Policymakers kept the one-year loan prime rate (LPR) at 3.85%. The five-year LPR remained at 4.65%. The rate was unchanged for the 15th straight month, despite growing expectations for a cut after a surprise lowering of bank reserve requirements.

The steady LPR, coming after the central bank kept the rate on medium-term lending facility (MLF) loans unchanged last week, suggests policymakers are looking to avoid full-scale easing.

Australia Shares Extend Losses as Miners and Energy Stocks Weigh

Australian shares pared back sharp losses made in the morning trade but ended lower on Tuesday, as a steep drop in mining and energy stocks outweighed gains in tech and healthcare firms.

On Tuesday, South Australia also entered lockdown, the third Australian state to do so as the country battled the worst COVID-19 outbreak of this year.

Aussie miners were among the biggest drags on the benchmark, slumping nearly 1.9% even as iron ore prices inched up. Energy stocks slumped as oil prices dipped 7% overnight, while Australia healthcare stocks reversed losses to end 0.9% higher.

For a look at all of today’s economic events, check out our economic calendar.

COVID-19 Surge Sparks Bond Rally, Stocks on Worst Run in 18 Months

By Marc Jones

Europe’s STOXX 600 slid over 2% in its worst session in seven months; London’s FTSE fell a similar amount to the lowest since mid-May as Britain’s “freedom day” lifting of COVID-19 restrictions was overshadowed by its fully vaccinated health minister contracting the virus.

The Dow Jones Industrial Average dropped 1.4% in early U.S. trading, with the S&P 500 and the Nasdaq Composite nearly matching those falls.

Meanwhile safe-haven government bonds enjoyed healthy gains, with U.S. 10-year Treasury yields sliding to new five-month lows while the dollar climbed to a 3-1/2 month high.

“The big concern for the market is whether we are going to see a slowdown in the global economic recovery, and this could be the overriding force which results in a bad period for equities in the weeks ahead,” said Russ Mould, investment director at brokerage AJ Bell.

In Asia, Japan’s Nikkei and Hong Kong’s Hang Seng dropped 1.3% overnight. Cases hit an 11-month high at the weekend in Singapore, Thailand had its highest single-day increase since the pandemic began and Sydney’s construction workers were told to down tools after cases rose there as well.

Markets were fretting over whether broader lockdowns might be needed again and a slowdown in the world’s No. 2 economy China, meaning a recent surge in commodity prices could be peaking.

Natwest’s Global Head of Desk Strategy, John Briggs, said rising COVID-19 cases would focus markets’ mind on which countries had the highest vaccination rates, their appetite for social restrictions and their fiscal appetite.

“The U.S. comes out on top of all these,” Briggs added. “We are in a period of renewed U.S. exceptionalism … So all this is bullish for the USD.”

In Europe, coronavirus angst saw travel and leisure stocks fall to their lowest level of the year. Shares of cruiseship operator Carnival, airlines easyJet and British Airways-owner IAG, and the UK’s Restaurant Group and Cineworld cinema chain all fell between 5%-6%.

It wasn’t just COVID-19 dampening the mood. China’s supersized tech trio Baidu, Alibaba and Tencent had sank 2.5%-3% overnight after a Shanghai court at the weekend posted a list of “typical unfair competition cases”.

 

Global number of new COVID-19 cases https://fingfx.thomsonreuters.com/gfx/mkt/xlbpgqqywpq/Pasted%20image%201626690579547.png

 

PERMANENTLY CHANGED?

Oil prices slid about 4% after the OPEC group of producing nations overcame a recent spat and agreed to boost output in a hastily arranged meeting on Sunday.

Brent crude was down $2.80 at a more than six-week low of $70.75 a barrel. U.S. crude fell a similar amount to $68.84 a barrel.

Global economic growth is beginning to show signs of fatigue as many countries, struggle to curb the highly contagious Delta variant of the coronavirus.

Investors are also worried about the spectre of elevated inflation, which the market has long feared.

Economists at Bank of America downgraded their forecast for U.S. economic growth this year to 6.5%, from 7% previously.

In bond markets, the move to safe-haven assets meant further falls in yields. Germany’s 10-year bond yield hit its lowest level since late March at -0.351% ahead of an ECB meeting this week. U.S. 10-year Treasury yields slipped to 1.21% and have fallen for 11 of the last 15 trading sessions.

The dollar was also riding high as risk currencies came under pressure. An index measuring the dollar’s value against a basket of major currencies briefly rose to as high as 93.041, its highest since early April.

But the dollar failed to make any headway against the yen, with the currency pair trading below the 110 yen per dollar mark at 109.10, leaving the yen almost 0.9% higher on the day.

Britain’s sterling hit a three-month low against the dollar at $1.3703 [GBP/] after its health minister Sajid Javid had tested positive for COVID-19. That forced Prime Minister Boris Johnson and finance minister Rishi Sunak to quarantine on Sunday.

“Despite rising vaccination rates, a return to pre-corona normality seems questionable,” Ulrich Leuchtmann, head of FX and commodity research at Commerzbank, wrote in a research note.

(Additional reporting by Karin Strohecker; Editing by Edmund Blair and Timothy Heritage)

Asia-Pacific Stock Indexes Finish Mixed, but Mostly Lower Amid Renewed COVID-19 Variant Concerns

The major Asia-Pacific stock indexes finished mixed but mostly lower on Friday as investors booked profits ahead of the weekend. Worries about valuations weighed on risk sentiment as well as concerns over the spread of the COVID-19 Delta Variant and its potential impact on the pace of the global economic recovery.

In Japan, the Nikkei dipped below 28,000 as tech stocks followed the U.S. NASDAQ Composite lower. Hong Kong shares inched higher while posting a weekly gain. South Korean stocks ended lower on virus worries and a tech sell-off, but still posted its first weekly gain in three.

China shares were down on Friday, but finished higher for the week as investors bet on policy support. Australian shares edged lower as lockdowns weighed on investors sentiment.

Friday’s Cash Price Performance

On Friday, Japan’s Nikkei 225 Index settled at 28003.08, down 276.01 or -0.98%. Hong Kong’s Hang Seng Index finished at 28004.68, up 8.41 or +0.03% and South Korea’s KOSPI Index closed at 3276.91, down 9.31 or -0.28%.

In China, the Shanghai Index settled at 3539.03, down 25.29 or -0.71% and Australia’s S&P/ASX 200 Index finished at 7348.10, up 12.20 or +0.17%.

China Stocks Post Weekly Gains as Investors Bet on Policy Support

China stocks posted weekly gains, as investors took comfort in the central bank’s surprise decision to cut the amount of cash that banks must hold as reserves to help underpin the country’s post-COVID economic recovery.

China’s central banks made a surprise cut in banks’ reserve requirement ratio (RRR) last Friday, releasing around 1 trillion Yuan in long-term liquidity, lifting hopes for further policy supports throughout the week.

Investor sentiment was also lifted by better-than-expected June activity data including retail and industrial output, driven by a rebound in developed market demand coupled with the sluggish recovery in Southeast Asian exporters.

Nikkei Breaks Below 28,000 as Tech Stocks Track NASDAQ Slide

Japan’s benchmark Nikkei share average fell below the psychologically key 28,000 mark on Friday as tech shares tracked declines on Wall Street overnight, while a continued surge in coronavirus infections dented investor sentiment.

New COVID-19 infections leapt to 1,308 cases in Tokyo on Thursday, the highest since January, a week before the city hosts the Olympics, which could potentially spark a renewed surge in infections amid the influx of foreign athletes and officials.

South Korea Stocks Fall on Virus Worries, Tech Sell-Off

South Korean shares retreated on Friday, dragged down by tech stocks after the NASDAQ closed lower overnight, while rising local COVID-19 cases also weighed on risk appetite.

South Korea’s prime minister said more limits on private gatherings may be needed around the country as the country battles the worst-ever outbreak, with authorities reporting 1,536 new coronavirus cases for Thursday.

Australian Shares Edge Lower as Lockdowns Weigh

Australian shares inched lower on Friday as lockdowns in the country’s two most populous cities soured investor sentiment, with heavyweight miners snapping a four-day winning streak.

The state of Victoria was ordered into a five-day lockdown on Thursday following a spike I COVID-19 infections, joining Sydney as they battle an outbreak of the highly contagious Delta variant.

For a look at all of today’s economic events, check out our economic calendar.

The US Continues To Dominate The World Stock Exchanges – Can This Last Forever? Part I

Not only has the capitalization of global market exchanges changed, but the attitudes of traders/investors have changed as well.

As the reflation/recovery trade setup and as global central banks continued to make efforts to support the post-COVID-19 recovery efforts, it appears that the focus of capital was initially fairly evenly disbursed across multiple global exchanges.  Traders and investors seemed to believe opportunity existed in nearly all global market indexes and exchanges.  Yet, it appears something changed as the world neared the September/October 2020 time frame.  Suddenly, capital started shifting away from growth expectations and into hedging and Risk-Off assets.  Then, in November/December 2020, global traders and investors shifted focus again – targeting US equities, technology, healthcare, and other sectors. The new focus drove an incredible rally phase that has carried into 2021.

In this article, we’re going to explore this shift in how traders/investors perceive opportunities, and why the past 7+ months may have setup a global shift away from continued rally expectations as we move into the second half of 2021.

The US Continues To Dominate Global Investing Focus

First, let’s explore the current global (world) stock market capitalization levels and try to gain some insight into how the global markets have shifted over the past 12+ months.

This graphic shows how the US stock market continues to dominate the global market and how it relates as a driver of global wealth and economic stability.  Comparatively, the US stock market is nearly 10x to 12x larger than than the average of the next largest 5 or 6 global foreign stock market exchanges.

In comparison, there is no other single comparable growth of the global economy than the US – in terms of stock market capitalization, wealth creation, and/or single source/focus of global dynamics.  In short, the US stock market and economy continue to dominate the world in comparison to how money is deployed into investments and related to future expectations for opportunities.  Global traders are making a statement with their own money that they believe the US economy, stock market, and capabilities far exceed any other Nation’s ability to create wealth and opportunity.

(Source: https://www.statista.com/statistics/710680/global-stock-markets-by-country/)

Global Stock Market Capitalization Continues To Climb Higher

This next chart, even though the data ends in 2019, suggests the global stock markets continue to grow in total market capitalization at rates that far exceed the 2000 and 2008 market peaks.  As the US Fed and global central banks have poured more capital into the markets, traders and investors have continued to seek out the best environment for the best returns and safety.  I believe the US stock market and economy have clearly moved to the forefront of all other global markets and that global traders and investors continue to pour capital into the US Dollar-based US stock market exchanges.

This dynamic has really amplified over the past 4+ years as Emerging Markets, Foreign Markets, and global traders have continued to seek out the safest and most secure investments on the planet.  The end result is that no other global stock market exchange and/or investing environment beats the US stock market and economy.

Because this chart ends in 2019, I’ve drawn a MAGENTA line which my team and I believe represents the increase in the world stock market capitalization throughout 2020 and into 2021.  The current global stock market capitalization, which reflects a possibly 55% to 60% US stock market dominance, suggests global capitalization is possibly 85% to 110% higher than the peak in 2007-08 (the Housing Crisis peak).  This suggests that total global market leverage and risk exposure may be 200% to 300% higher than at any time in recent history.  In short, global market risks are likely 2x to 3x higher than at any time over the past 75+ years.

(Source: https://data.worldbank.org/indicator/CM.MKT.LCAP.CD)

US Dominates Top 10 World Stock Exchanges

This recent list of the Top 10 World Stock Exchanges, showing Market Cap, clearly shows the US continues to dominate.  This clearly shows the US economy, stock market, and consumer market is driving the global economic activity.  No matter how you try to slice up the data, the US economy and stock market continue to outpace the nearest global stock market exchanges by more than 3x to 5x total capitalization levels.

Combined, the New York Stock Exchange (NYSE) and the NASADAQ total more than 45 Trillion US Dollars.  Comparatively, a combination of the exchanges ranked 3~10 total $39.64 Trillion US Dollars.  That’s a pretty big comparison when you realize the total of the Shanghai Stock Exchange, Japan Exchange Group, Hong Kong Stock Exchange, Euronext, Shenzen Stock Exchange, London Stock Exchange, Toronto Stock Exchange, and India National Stock Exchange (representing more than ½ of the total world population), equates to only 87.6% of the US NYSE and NASDAQ stock exchange market capitalization.

The world has decided that the US stock market, economy, consumer engagement, and corporations are the driving force behind almost all of the global economic activity and wealth creation anywhere in the world right now.  Nothing is even close to equaling the total capitalization and potential for wealth creation and opportunity as the US.

(Source: https://www.advratings.com/companies/the-largest-stock-exchanges)

In Part II of this article, we’ll explore how the dynamics of the US vs global market indexes are showing how this divergence in market capitalization could be driving very big trends over the next 2+ years.  We’ll also show how vulnerable certain foreign market exchanges may be to broad market rotation events over the next 5+ years.

Simply put, the rotations over the past 20+ years in the US stock market, and the actions of the US Federal Reserve, have strengthened the position of the US consumer, economy, valuations, and future expectations.  If another broad market rotation/reversion event were to take place, we believe the disruption in capital flows and creation will continue to propel the shift towards the US stock market and economy even further.  Leaving many foreign market stock exchanges in very perilous market capitalization and liquidity positions.

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Have a great day!

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com