(Bloomberg) — Asian shares fell after losses in the U.S., with investors focusing on the reopening of Chinese markets after a weeklong holiday.
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Stocks fell in Tokyo as Wall Street was swept up by a technology sell-off, geopolitical fears and bets on a smaller rate cut from the Federal Reserve. A gauge for US-listed Chinese stocks was flat overnight. Stock markets in Australia rose higher.
All attention will be on China, with a briefing by the country’s top economic planner at 10am local time and a close watch for more policy action. The government has launched a slew of stimulus measures ahead of the Golden Week holiday period and Chinese stocks have soared as the support revived investor confidence. Beijing’s use of fiscal firepower has the potential to unlock between 4 and 10 trillion yuan in stimulus, according to economist Jia Kang.
“There’s definitely a lot of support coming for the market,” Kerry Craig, global market strategist at JPMorgan Asset Management, said on Bloomberg TV. “The question is whether the market will be a little disappointed if they don’t get what they expect from that budget package.”
According to Morgan Stanley, an overheating of the A-share market and the implementation of the Chinese government’s recently announced policy stimulus are among the risks investors should keep an eye on during the Chinese stock market rally.
Several other investors are also not convinced how long the rally will last. Invesco Ltd., JPMorgan Asset Management, HSBC Global Private Banking and Wealth and Nomura Holdings Inc. include those who view the recent rebound with skepticism and wait for Beijing to deliver on its stimulus promises with real money.
“So while we expect a pop, we do expect more policy news to come out that would support equity prices,” said Lorraine Tan, director of Asia Equity Research at Morningstar on Bloomberg TV. “We would probably be much more selective in the future for anyone who wants to participate in the upswing,” she said.
China’s CSI 300 Index rose 8.5% on September 30, the last trading day before Golden Week. Meanwhile, Chinese stocks in Hong Kong continued their rally. Given the size of gains in related stocks during the holidays, the 10% trading limits on some stocks may come into play, potentially delaying the full sense of market reaction.
The S&P 500 fell 1% on Monday after a four-week winning run. Alphabet Inc. fell 2.4% as a judge ruled that it must lift restrictions that prevent developers from setting up competitive marketplaces that compete with the Google Play Store. Brent crude rose above $80 a barrel amid rising tensions in the Middle East. In the wake of Friday’s solid jobs data, Treasuries continued to fall, with 10-year yields rising above 4%.
“Friday’s strong jobs report not only appeared to wipe out any chance of a 50 basis point rate cut in November, it also fueled talk that the Fed might leave rates unchanged if economic data remains warmer than expected,” said Chris Larkin by E. *Trading by Morgan Stanley. “But as was evident last week, geopolitics cannot be ignored.”
The Middle East crisis continues to unnerve investors, with fighting escalating on multiple fronts on Monday after a year of war. The Israeli military said it intercepted most of a barrage of rockets fired at Tel Aviv by Hamas and other Iranian-backed groups. Brent crude rose to its highest price since August as speculation mounted that Israel could attack Iran’s oil infrastructure. West Texas Intermediate crude rose early Tuesday.
According to Morningstar’s Dave Sekera, any further geopolitical escalation could fuel risky trading, with growth stocks underperforming value stocks.
“Typically on a risk-off trade you see a rotation into defense stocks, but I would be cautious if you are an investor today,” he said. “Some defensive sectors are already overvalued today. Unlike a typical risky trade, I think oil stocks would rise.”
With the exception of energy stocks, all major sectors in the S&P 500 fell on Monday. A gauge for the “Magnificent Seven” megacaps fell 1.9%. Amazon.com Inc. fell 3.1% after Wells Fargo Securities downgraded the stock. Apple Inc. fell 2.3% as a Jefferies analyst said investors have overly optimistic expectations for the latest iPhones. Nvidia Corp. won. In Asia, Samsung Electronics Co. reported. a provisional operating profit that was not within expectations.
The VIX volatility gauge rose to a two-month high. The ten-year government bond yield rose by six basis points to 4.03%.
Despite the decline in stock prices, two of Wall Street’s top strategists have become more optimistic following signs of a robust labor market, economic resilience and an easing of interest rates.
Morgan Stanley’s Michael Wilson put forward his view on so-called cyclical stocks versus safer defensive stocks, noting Friday’s huge payroll data and expectations of more Fed cuts. His colleague at Goldman Sachs Group Inc., David Kostin, raised his 12-month target for the benchmark from 6,000 to 6,300 points. The meter closed on Monday at 5,695.94.
Main events this week:
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The Fed’s Raphael Bostic, Susan Collins, Philip Jefferson and Adriana Kugler will speak Tuesday
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Fed minutes, Wednesday
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The Fed’s Lorie Logan, Raphael Bostic, Austan Goolsbee and Mary Daly will speak Wednesday
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US initial unemployment claims, CPI, Thursday
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John Williams and Thomas Barkin of the Fed will speak on Thursday
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JPMorgan and Wells Fargo kick off earnings season for the major Wall Street banks on Friday
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U.S. PPI, University of Michigan Consumer Confidence, Friday
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The Fed’s Lorie Logan, Austan Goolsbee and Michelle Bowman will speak Friday
Some of the major moves in the markets:
Stocks
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S&P 500 futures rose 0.1% as of 9:51 a.m. Tokyo time
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Japan’s Topix fell 0.9%
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Australia’s S&P/ASX 200 rose 0.2%
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Euro Stoxx 50 futures were little changed
Currencies
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The Bloomberg Dollar Spot Index fell 0.1%
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The euro was little changed at $1.0983
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The Japanese yen rose 0.2% to 147.85 per dollar
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The offshore yuan rose 0.1% to 7.0623 per dollar
Cryptocurrencies
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Bitcoin fell 0.8% to $62,508.94
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Ether fell 0.3% to $2,433.95
Bonds
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The yield on ten-year government bonds fell by two basis points to 4.01%
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The Japanese ten-year yield rose by one basis point to 0.930%
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The Australian ten-year yield rose by 12 basis points to 4.19%
Raw materials
This story was produced with the help of Bloomberg Automation.
–With help from Shery Ahn and April Ma.
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