Asian stocks endured a bruising start to the week as China’s property woes deepened, threatening the country’s wider economy and shocking bond markets.
China’s Country Garden, the country’s top private property developer, suspended trading of its 11 onshore bonds as it shares plunged 18%, after it missed bond payments and warned of multibillion-dollar losses.
Like its heavily indebted competitor Evergrande, any collapse of Country Garden would have enormous repercussions for the Chinese financial system and economy.
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China and Hong Kong stocks fell with investor sentiment also subdued after disappointing credit data added to worries about China’s slowing economy.
China’s new bank loans tumbled in July and other key credit gauges also weakened, even after policymakers cut interest rates and promised to roll out more support for the faltering economy.
The Shanghai Composite Index fell 0.34%, or 10.82 points, to 3,178.43, while the Shenzhen Composite Index on China’s second exchange edged down 0.13%, or 2.64 points, to 1,999.65.
Mainland property stocks traded in Hong Kong were down roughly 4.6% in early morning trade and the Hang Seng Index dropped 1.58% at the close, or 301.64 points, to 18,773.55.
Japan’s Nikkei share average slid as chip stocks followed US peers lower and a retreat in crude oil weighed on energy companies.
Worries about the Chinese economy also marred overall market sentiment, while exporters failed to get a boost from the yen’s drop to a nine-month low beyond 145 per dollar.
Financial results continued to produce outsized losers and winners on the final day of the current reporting period. Ship and machinery maker Mitsui E&S Co tumbled 8.32% to lead Nikkei decliners, while Nippon Sheet Glass climbed 10.55% to be the top performer.
The Nikkei sank 1.27% to end at 32,059.91, close to the session low, after trading resumed following a holiday-extended weekend. Of the Nikkei’s 225 components, 175 fell versus 48 that rose, with two flat. The broader Topix lost 0.98% to 2,280.89.
US Retail Sales Rise Forecast
MSCI’s broadest index of Asia-Pacific shares outside Japan lost another 1.7%, after shedding 2% last week. Elsewhere across the region, Singapore dipped by more than 1% and Bangkok and Jakarta were also down but Mumbai gained.
Eurostoxx 50 futures slipped 0.4% and FTSE futures were down 0.2%. The sour mood saw S&P 500 futures and Nasdaq futures shed early gains to each ease 0.2%.
That followed losses on Friday when surprisingly high readings on US producer prices tested market optimism that inflation would cool enough to avoid further rate hikes.
Figures on US retail sales this week are forecast to show a 0.4% pick up in spending, with risks on the high side thanks in part to Amazon’s Prime Day.
Analysts at BofA say data on credit and debit card spending suggests sales could rise 0.7% with activity around the July 4 holiday stronger than last year.
Such an outcome would challenge the market’s benign outlook for rates, with futures implying a 70% chance the Federal Reserve is done hiking. The market also has more than 120 basis points of cuts priced in for next year starting from around March.
US Dollar Climbs
Minutes of the Fed’s last meeting are due on Wednesday and could show members wanted to keep their options open on further hikes.
The resilience of the US economy combined with a truly massive government borrowing requirement kept 10-year Treasury yields up at 4.18%, after a rise of 12 basis points last week.
That rise juiced the dollar against the low-yielding yen, hoisting it as far as 145.22 and a peak not seen since November last year. Concerns about possible intervention then saw it edge back to 144.92.
The dollar was also climbing on its Australian and New Zealand counterparts, along with a range of emerging Asian currencies, all being dumped as proxies for China risk.
The ascent of the dollar and yields was weighing on gold at $1,912 an ounce, having fallen for three weeks in a row.
Oil prices have been going the other direction as tight supply meets forecasts of strong demand to deliver seven straight weeks of gains. Monday saw some profit-taking nudge Brent down 78 cents to $86.03 a barrel, while US crude fell 76 cents to $82.43 per barrel.
Key figures
Tokyo – Nikkei 225 < DOWN 1.27% at 32,059.91 (close)
Hong Kong – Hang Seng Index < DOWN 1.58% at 18,773.55 (close)
Shanghai – Composite < DOWN 0.34% at 3,178.43 (close)
London – FTSE 100 < DOWN 0.16% at 7,512.49 (0934 BST)
New York – Dow > UP 0.30% at 35,281.40 (Friday close)
- Reuters with additional editing by Sean O’Meara
Read more:
Shares of China’s Country Garden Plunge as Bond Trading Halted
China’s $13tn Provincial Debt Crisis Threatens to Spill Over
Hang Seng, China Stocks Drop on Lacklustre Beijing Stimulus
