Asia Stocks Extend Drop; Dollar, Treasuries Dip: Markets Wrap

(Bloomberg) — A selloff in stocks continued in Asia on Tuesday amid concern about China’s crackdown on the real-estate sector and the debt crisis at developer China Evergrande Group.

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Japan slid after reopening following a holiday, while Australia and Hong Kong fluctuated. U.S. futures edged up, suggesting a degree of improvement in sentiment. Property stocks in Hong Kong bounced after Monday’s plunge as Sun Hung Kai Properties disputed reports China is pressuring the city’s developers. Dip-buyers in the last hour of trading helped the S&P 500 pare some losses, though the gauge still posted the biggest drop since May.

Treasuries pared an advance and the dollar slipped. Aside from worries over Evergrande’s ability to make good on $300 billion of liabilities, Wednesday’s Federal Reserve meeting also looms. Policy makers are expected to start laying the groundwork for paring stimulus.

The property-sector upheaval is part of President Xi Jinping’s broader clampdown on private industries under his “common prosperity” initiative to reduce economic inequality. As investors await clarity on how the debt mess at Evergrande will be resolved, there is doubt the government will bail out the embattled developer. Shares fell for a seventh day. China’s markets and those in South Korea remain closed for a holiday.

The risks emanating from China come as investors question stretched equity valuations, in part because the delta virus variant has slowed the reopening from the pandemic amid price pressures stoked by commodities. Markets are also digesting an outlook of reduced central bank policy support.

“Markets are clearly having some angst on the potential spillover effects from Evergrande, along with some nervousness over the September FOMC meeting,” said Cliff Hodge, chief investment officer at Cornerstone Wealth. “We’ve been in the camp that we’re overdue for a correction, something in the 5%-10% range that is a buyable pullback. At the moment, we’re not worried about a market crash. The Fed and Evergrande are not new.”

Elsewhere, Bitcoin slid in volatile trading, tumbling as much as 7.6% before bouncing back to above $42,000. Oil pared a slump and gold held onto ga ins.

Here are key events to watch this week:

  • Bank of Japan rate decision, Wednesday

  • Federal Reserve rate decision, Wednesday

  • Bank of England rate decision, Thursday

  • Fed Chair Jerome Powell, Fed Governor Michelle Bowman and Vice Chairman Richard Clarida discuss pandemic recovery, Friday

For more market analysis, read our MLIV blog.

Some of the main moves in markets:

Stocks

  • S&P 500 futures rose 0.3% as of 11:16 a.m. in Tokyo. The S&P 500 fell 1.7%

  • Nasdaq 100 futures added 0.3%. The Nasdaq 100 fell 2.1%

  • Japan’s Topix index fell 1.8%

  • Australia’s S&P/ASX 200 Index was little changed

  • Hong Kong’s Hang Seng Index climbed 0.1%

  • Euro Stoxx 50 futures added 0.3%

Currencies

  • The Japanese yen traded at 109.51 per dollar, down 0.1%

  • The offshore yuan was at 6.4745 per dollar, up 0.1%

  • The Bloomberg Dollar Spot Index dipped

  • The euro was up 0.1% at $1.1736

Bonds

  • The yield on 10-year Treasuries was at 1.32%, up one basis point

  • Australia’s 10-year bond yield declined five basis points to 1.26%

Commodities

  • West Texas Intermediate crude was at $70.90 a barrel, up 0.9%

  • Gold was at $1,764.94 an ounce

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