China weakness spoils risk rally; US Futures Rise: Markets Wrap

(Bloomberg) – Weakness in Chinese assets clouded an otherwise positive day for markets as US stock futures and shares rose across much of Asia on encouraging signs from Washington’s debt ceiling talks.

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Hong Kong stocks slid on Friday in a decline led by internet giants. The Hang Seng Tech Index plunged as much as 2.4% as Alibaba Group Holding Ltd plunged on disappointing sales, fueling signs of a faltering recovery from China’s coronavirus crisis.

Data this week showed that activity in the world’s second largest economy is losing momentum as private companies struggle to increase investment and households scale back their purchases of goods. The offshore yuan depreciated to levels not seen since late last year. An official fix above 7 per dollar reflected officials’ willingness to keep the currency weak, possibly to boost domestic activity.

“The recovery in China is slowing down,” Goldman Sachs Asset Management chief investment officer Ashish Shah told Bloomberg Television. “We all expected it wasn’t going to be a straight line – you’re going to go through waves,” Shah said, adding that the central bank “would have to adopt much looser policy going forward.”

Elsewhere, stocks rose in Australia, South Korea and Japan. The Topix surge put the index on track for its best week since November and a new 33-year high.

Contracts for the S&P 500 rose after the index ended Thursday at a nine-month high. Nasdaq 100 futures also rose after the tech-heavy index rose nearly 2%.

Treasury bonds were flat in Asian trading after a sell-off on Thursday that suggested traders are changing their expectations that the Federal Reserve will keep interest rates higher for longer. The dollar’s index was little changed after posting its sharpest rise in two months in the previous session.

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“Inflation slowing from 9% at its peak to 5% at last release is allowing the Fed to pause,” Belita Ong of Dalton Investments said in an interview with Bloomberg Television. “Especially coupled with the weakness we have seen in the employment data as well as the bank failures which appear to have led to tightening credit conditions.”

With mixed comments from central bank officials this week, the probability that the Fed will hike rates at its June meeting is around 40% based on market prices. Fed Bank of Dallas President Lorie Logan said Thursday that the case for a pause next month was not clear, contrary to dovish comments from central bank Governor Philip Jefferson.

The yen edged higher after inflation in Japan picked up again in April after months of deceleration. That could keep speculation alive that the central bank may have to revise its price outlook after expectations of monetary policy normalization faded in the previous session. The currency hit its weakest level this year against the dollar on Thursday.

Oil prices rallied, following some of the risk-on sentiment, and heading for its first weekly rally in more than a month. Gold rose slightly.

Debt ceiling talks

House Speaker Kevin McCarthy and Senate Majority Leader Chuck Schumer plan to vote on a bipartisan deal in the coming days to avert a US default. Treasury Secretary Janet Yellen told bank leaders that not raising the debt ceiling would be “catastrophic” for the financial system and reiterated the matter should be addressed immediately.

Investors also kept an eye on the potential impact of rising stock trading volumes. About $1.7 trillion in derivative contracts linked to stocks and indices expire on Friday, according to John Marshall, strategist at Goldman Sachs Group Inc. This usually forces traders to either roll over existing positions or open new ones, leading to an increase in trading and sudden price swings.

Important events this week:

• ECB President Christine Lagarde takes part in the panel discussion at the Brazilian Central Bank Conference on Friday

• New York Fed’s John Williams speaks at monetary policy research conference in Washington; Fed Chair Jerome Powell and former Chair Ben Bernanke will join the panel on Friday

Some of the key movements in the markets:

Shares

• S&P 500 futures were up 0.2% as of 12:30 p.m. Tokyo time. The S&P 500 rose 0.9%

• Nasdaq 100 futures were up 0.3%. The Nasdaq 100 rose 1.9%

• Japan’s Topix rose 0.5%

• Australia’s S&P/ASX 200 rose 0.7%

• Hong Kong’s Hang Seng fell 0.8%

• The Shanghai Composite rose 0.2%

• Euro Stoxx 50 futures up 0.5%

currencies

• The Bloomberg Dollar Spot Index is little changed

• The euro was little changed at $1.0768

• The Japanese yen rose 0.2% to 138.48 per dollar

• The offshore yuan fell 0.1% to 7.0571 per dollar

• The Australian dollar rose 0.2% to $0.6638

cryptocurrencies

• Bitcoin rose 0.5% to $26,859.75

• Ether was up 0.3% to $1,802.71

Bind

• The 10-year government bond yield fell one basis point to 3.64%

• Japan’s 10-year yield rose 1.5 basis points to 0.395%

• Australia’s 10-year yield rose 11 basis points to 3.59%

raw materials

• West Texas Intermediate crude was up 0.8% to $72.40 a barrel

• Spot gold rose 0.3% to $1,962.54 an ounce

This story was created with the support of Bloomberg Automation.

– With support from Rita Nazareth and Rob Verdonck.

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