Chinese Stocks Lead Asia Lower on Stimulus Concern: Markets Wrap

(Bloomberg) — Mainland Chinese equities led losses in the region on Wednesday after weak economic data and as Beijing refused to commit to more economic stimulus.

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The benchmark CSI 300 Index fell as much as 5.1% within minutes of opening, but pared some of its losses. That erased a lot of the gains from yesterday, when stocks surged on their return from the Golden Week holiday. Shares in Hong Kong fluctuated following Tuesday’s biggest tumble in 16 years. US equity futures fell after a report authorities were weighing up a breakup of Google.

Concerns mounted that the latest burst of stimulus may be insufficient to convince investors of a sustainable rally in the equity market. Chinese tourists shelled out less money during their long holiday while a news report that cited Premier Li Qiang indicated China needs to introduce policies to stabilize growth and expectations, a further sign Beijing is attempting to build confidence among investors.

The National Development and Reform Commission, China’s economic planning agency announced that a meager 200 billion yuan ($28 billion) in spending would be advanced from next year, after analysts forecast a fiscal package worth as much as 3 trillion yuan in the pipeline.

“I don’t know what the chairman of the NDRC was thinking with this,” said Alicia Garcia Herrero, Asia Pacific chief economist at Natixis SA. “Frankly the more they wait to clarify, the worse it can be because people will realize there’s no fiscal side to this stimulus — that it’s all monetary, propping up stocks and so on. And that’s quite dangerous.”

New Zealand’s dollar and bond yields fell after the nation’s central bank delivered a 50 basis-point cut on its benchmark rate. It is the Reserve Bank of New Zealand’s second straight reduction as policymakers become more concerned about the economic slowdown.

Meanwhile, India will unveil its rate decision later today while South Korea will join FTSE Russell’s benchmark bond index, capping months of official campaigning and a overhaul of financial market infrastructure.

US Rate-Cut Expectations

In the US, the world’s largest technology companies drove stocks higher on Tuesday, with the market rebounding from its worst session in a month. Chipmakers led gains on Tuesday as Nvidia Corp. extended a five-day rally to 14%.

Treasuries were little changed after steadying Tuesday following a run of selling in the prior four sessions, amplified by last week’s US jobs data that weighed on rate-cut expectations. With inflation data due later in the week, the US 10-year yield fell one basis point to just above 4%, while front-end yields fell by a sharper margin as investors parsed comments from Federal Reserve officials.

Fed Bank of Boston President Susan Collins noted that rate cuts should be careful and data-based. Her Atlanta counterpart Raphael Bostic said while risks to inflation have come down, threats to the labor market have risen, though the economy is still strong. Governor Adriana Kugler said officials should keep the focus on bringing inflation to target, with a “balanced approach” that avoids a slowdown in jobs.

“The US data is not so strong that the Federal Reserve’s contribution to the global rate-cutting cycle looks set to end,” said Mark Haefele at UBS Global Wealth Management. “We therefore maintain our conviction for investors to position for lower rates.”

Key events this week:

Fed minutes, Wednesday
Fed’s Lorie Logan, Raphael Bostic, Austan Goolsbee and Mary Daly speak, Wednesday
US CPI, initial jobless claims, Thursday
Fed’s John Williams and Thomas Barkin speak, Thursday
JPMorgan, Wells Fargo kick off earnings season for the big Wall Street banks, Friday
US PPI, University of Michigan consumer sentiment, Friday
Fed’s Lorie Logan, Austan Goolsbee and Michelle Bowman speak, Friday