(Bloomberg) — China’s world-beating equity rally lost momentum after a key briefing expected to unveil economic stimulus measures underwhelmed investors. Hong Kong shares tumbled along with Asian ones, while the yen gained.
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The benchmark CSI 300 trimmed its 11% gains to 2% in an hour after trading reopened after a weeklong holiday. A gauge of Chinese stocks in Hong Kong had their worst intra-day tumble since 2008. Broader Asian equities dropped after Wall Street was dragged down by a tech selloff, geopolitical angst and bets on a smaller Federal Reserve rate cut. MSCI’s Asia-Pacific share gauge dropped the most in a month.
A briefing by the nation’s top economic planner failed to deliver more stimulus measure after earlier policy announcements before the Golden Week holiday break sent shares in China and Hong Kong surging. From JPMorgan Asset Management to HSBC Global Private Banking, several investors questioned the sustenance of that rally. There’s some convergence in the markets with investors rotating money from Hong Kong to China, benefiting mainland shares, said Marvin Chen, a Bloomberg Intelligence strategist.
“I wouldn’t be surprised if we see bigger volatility around events like the NDRC now, because expectations have been raised,” said Phillip Wool, head of portfolio management at Rayliant Global Advisors. “I do believe policymakers are taking a different tack now, and that’s our focus for the medium- to longer-term.”
Invesco Ltd. and Nomura Holdings Inc. are also among those viewing the recent rebound with skepticism and waiting for Beijing to back up its stimulus pledges with real money.
An overheating of the A-share market and the Chinese government’s delivery on its recently announced policy stimulus are among the risks investors should watch amid the Chinese stock market rally, according to Morgan Stanley.
The S&P 500 fell 1% on Monday after notching a four-week winning run. Alphabet Inc. sank 2.4% as a judge ruled it must lift restrictions that prevent developers from setting up rival marketplaces that compete with its Google Play Store. Brent crude jumped above $80 a barrel in overnight trading amid mounting tensions in the Middle East. In the wake of Friday’s solid jobs data, Treasuries continued to drop — with the 10-year yield topping 4%.
“Friday’s strong jobs report not only appeared to kill any chance of a 50-basis-point rate cut in November, it kickstarted chatter about the Fed leaving rates unchanged if economic data continues to come in hotter than expected,” said Chris Larkin at E*Trade from Morgan Stanley. “But as last week showed, geopolitics can’t be ignored.”
The crisis in the Middle East continues to unnerve investors, with fighting escalating Monday on multiple fronts after a year of war. The Israel Defense Forces said it intercepted most of a barrage of rockets fired toward Tel Aviv by Hamas and other Iran-backed groups. Brent crude soared to its highest price since August as speculation increased that Israel may attack Iran’s oil infrastructure. West Texas Intermediate crude rose early Tuesday.
To Dave Sekera at Morningstar, if there is any further geopolitical escalation, that would potentially spur the risk-off trade — with growth shares underperforming value ones.
“Typically, in a risk-off trade, you’re going to see rotation into defense stocks, but I’d be careful if you’re an investor today,” he said. “Some of the defensive sectors today are already overvalued. Unlike a typical risk-off trade, I think oil stocks would go up.”
With the exception of energy shares, every major sector in the S&P 500 dropped Monday. A gauge of the “Magnificent Seven” megacaps slipped 1.9%. Amazon.com Inc. sank 3.1% after Wells Fargo Securities downgraded the shares. Apple Inc. slid 2.3% as a Jefferies analyst said investors have overly optimistic expectations for the latest iPhones. Nvidia Corp. gained. In Asia, Samsung Electronics Co. reported preliminary operating profit that missed estimates.
The VIX volatility gauge jumped to a two-month high. Treasury 10-year yields rose six basis points to 4.03%.
Key events this week:
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Fed’s Raphael Bostic, Susan Collins, Philip Jefferson and Adriana Kugler speak, Tuesday
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Fed minutes, Wednesday
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Fed’s Lorie Logan, Raphael Bostic, Austan Goolsbee and Mary Daly speak, Wednesday
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US initial jobless claims, CPI, Thursday
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Fed’s John Williams and Thomas Barkin speak, Thursday
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JPMorgan, Wells Fargo kick off earnings season for the big Wall Street banks, Friday
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US PPI, University of Michigan consumer sentiment, Friday
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Fed’s Lorie Logan, Austan Goolsbee and Michelle Bowman speak, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures were little changed as of 11:55 a.m. Tokyo time
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Japan’s Topix fell 1.5%
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Australia’s S&P/ASX 200 fell 0.2%
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Hong Kong’s Hang Seng fell 6.7%
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The Shanghai Composite rose 3.4%
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Euro Stoxx 50 futures fell 1%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0979
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The Japanese yen rose 0.3% to 147.71 per dollar
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The offshore yuan fell 0.1% to 7.0786 per dollar
Cryptocurrencies
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Bitcoin fell 0.6% to $62,623.39
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Ether fell 0.2% to $2,435.48
Bonds
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The yield on 10-year Treasuries declined three basis points to 4.00%
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Japan’s 10-year yield was little changed at 0.925%
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Australia’s 10-year yield advanced 10 basis points to 4.18%
Commodities
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West Texas Intermediate crude fell 1.9% to $75.71 a barrel
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Spot gold fell 0.2% to $2,637.77 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Shery Ahn and April Ma.
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