Stocks Set for Cautious Open on China Covid Worry: Markets Wrap
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(Bloomberg) -- Stocks in Asia looked set for a cautious start Tuesday after bonds rallied amid concerns that China’s Covid-afflicted economy will sap the global recovery. The nation’s central bank took steps to bolster the yuan.
Futures rose for Japan and Hong Kong but dipped for Australia, while U.S. contracts wavered. Wall Street shares closed a choppy session higher after Elon Musk agreed to buy Twitter Inc. and as dip buyers emerged ahead of earnings reports from major technology firms.
Treasuries jumped along with the dollar Monday. That pattern reflected demand for havens as China’s lockdowns and aggressive Federal Reserve monetary tightening to fight high inflation raise the risk of an economic downturn.
The yuan pared its biggest loss since 2015 after the People’s Bank of China cut the amount of money banks must set aside in reserve for foreign-currency holdings, effectively increasing the supply of dollars in the domestic market.
Oil held a retreat below $100 a barrel, weighed down by the threat to demand from China. The virus outbreak in the world’s biggest crude importer is another source of commodity-market volatility alongside Russia’s invasion of Ukraine.
The prospect of much slower economic expansion alongside persistent inflation is leading to a febrile mood in markets. The panoply of risks spans the pandemic, supply-chain disruptions, Fed tightening and the grinding war. The search for portfolio buffers in the U.S. is evident in the highest relative cost of loss-protecting put contracts in two years.
“It’s a question of what’s monetary policy going to look like and it’s super unknown,” Nancy Davis, chief investment officer at Quadratic Capital Management LLC, said on Bloomberg Television.
China’s stock market will open later at the lowest level in about two years after a near-5% plunge in the benchmark CSI 300 Index on Monday. Pressure is mounting on China’s leaders to take more steps to support the economy.
“For the time being, the specter of more severe restrictions in China is not being traded from the inflationary side, but rather as a detriment to the global recovery and as a demand-negative shock,” Benjamin Jeffery and Ian Lyngen, strategists at BMO Capital Markets, wrote in a note.
They added they are “less convinced that the situation will be enough to materially shift the FOMC’s aggressiveness.”
Events to watch this week:
- Tech earnings include Alphabet, Meta Platforms, Amazon, Apple
- EIA oil inventory report, Wednesday
- Australia CPI, Wednesday
- Bank of Japan monetary policy decision, Thursday
- U.S. 1Q GDP, weekly jobless claims, Thursday
- ECB publishes its economic bulletin, Thursday
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.1% as of 7:25 a.m. in Tokyo. The S&P 500 rose 0.6%
- Nasdaq 100 futures lost 0.2%. The Nasdaq 100 rose 1.3%
- Nikkei 225 futures rose 0.7%
- S&P/ASX 200 futures fell 0.3%
- Hang Seng futures increased 0.7%
Currencies
- The Bloomberg Dollar Spot Index was steady
- The euro was at $1.0713
- The Japanese yen was at 128.06 per dollar
- The offshore yuan was at 6.5722 per dollar
Bonds
- The yield on 10-year Treasuries declined eight basis points to 2.82%
Commodities
- West Texas Intermediate crude was at $98.62 a barrel
- Gold was at $1,899.36 an ounce
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