Beijing pledge saves China stocks from Asian slump: Markets wrap

Chinese shares rallied after authorities intensified rescue efforts, defying broader weakness in Asia as hopes ebbed for a swift Federal Reserve pivot toward policy easing.

The Hang Seng Index rose 2% while the mainland benchmark of CSI 300 was up 1.8%. The gains came after Beijing took more steps to stem a stock rout, such as widening trading curbs on investors including quantitative funds. A pledge by the nation’s sovereign wealth fund to further increase holdings of exchange-traded funds also lifted investor mood.

In contrast, equities in Japan, Australia and South Korea fell, while US equity futures were steady after the S&P 500 dropped 0.3% and the Nasdaq 100 shed 0.2% Monday.

“Right now the market is looking for clearer signals on the economic recovery,” Marcella Chow, global market strategist for JPMorgan Asset Management, said on Bloomberg Television regarding China. “Expectations remain quite low — markets and investors are still grappling with the weak economic recovery.”

The 10-year Treasury yield fell three basis points in Asian trading. That followed another bout of heavy selling Monday, spurred by strong US economic data, that pushed the rate up by 14 basis points, marking the biggest two-day jump since June 2022.

The Treasuries selloff on Monday came after the Institute for Supply Management’s services gauge hit a four-month high while prices picked up. The news jolted trading when investors were already digesting cautious views from some Fed speakers including Jerome Powell.

The net effect is a stronger economy that gives the central bank longer to reduce rates. Fed swaps almost wiped out the odds of a March rate move, and the chances of a May cut have also been reduced.

The “one-two punch” prevented market players from achieving further upside, according to Jose Torres at Interactive Brokers. JPMorgan Chase & Co. strategist Marko Kolanovic said that “absent a material shock, we think this year’s easing will prove more moderate than markets have priced.”

Australian and New Zealand yields were moderately higher. The Australian dollar strengthened after the Reserve Bank of Australia said a further increase in interest rates can’t be ruled out as it held the policy rate steady Tuesday as expected.

The dollar was steady after it hit its strongest since November in a muted start to trading in currency markets. The yen was little changed at just above 148 per dollar.

Annual wage negotiations in Japan have kicked off in earnest, as its central bank looks for evidence of a virtuous wage-price cycle that would allow it to exit from the world’s last negative rate regime.

In the US, Fed Bank of Minneapolis President Neel Kashkari said officials have time to gauge incoming data before easing while his Chicago counterpart Austan Goolsbee reiterated he’d like to see more of the favorable inflation data.

The world’s major central banks mustn’t drop their guard in the fight against inflation as it’s too soon to say if sharp interest rate increases have contained underlying price pressures, the OECD said. Meantime, the latest Bloomberg Markets Live Pulse survey showed American shoppers won’t be deterred by mounting credit-card bills or the recent ripple of layoffs. More than half of 463 respondents said spending will stay strong or get even stronger in 2024.

“The ongoing strength of the US economy relative to most of its G-10 peers is one of the key reasons why we have held a counter consensus bullish view on the USD since September 2023,” said Dominic Bunning at HSBC.

Elsewhere, gold inched higher to trade at around $2,027 per ounce. West Texas Intermediate was slightly higher. Bitcoin edged higher at above $42,500.

Key events this week:

Reserve Bank of Australia’s rate decision, Tuesday
Eurozone retail sales, Tuesday
Germany factory orders, Tuesday
UBS earnings, Tuesday
Bank of Canada Governor Tiff Macklem speaks, Tuesday
Fed’s Loretta Mester and Patrick Harker speak, Tuesday
Germany industrial production, Wednesday
Walt Disney earnings, Wednesday
Fed’s Adriana Kugler and Tom Barkin speak, Wednesday
China PPI, CPI, Thursday
US wholesale inventories, initial jobless claims, Thursday
Treasury Secretary Janet Yellen speaks at a Senate banking committee hearing on the Financial Stability Oversight Council annual report, Thursday
Pharma CEOs speak at a Senate panel on prescription drug prices, Thursday
ECB Chief Economist Philip Lane speaks, Thursday
ECB publishes economic bulletin, Thursday
US CPI revisions, Friday
Germany CPI, Friday
President Joe Biden hosts German Chancellor Olaf Scholz at the White House, Friday