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Stocks struggle for traction amid US-China tension: markets wrap

Gold was at $1 767.55 an ounce, up 0.4%.
Image: Qilai Shen/Bloomberg

Stocks made little headway in Asia on Wednesday and Treasuries rose as traders weighed fraught US-China ties and hawkish Federal Reserve comments pointing to growth-sapping monetary-tightening.

MSCI Inc.’s Asia-Pacific equity index was little changed in a mixed day for the region that included a jump in Chinese technology shares. S&P 500, Nasdaq 100 and European futures fluctuated in narrow ranges.

US House Speaker Nancy Pelosi is continuing a visit to Taiwan that has provoked an angry response from China. Markets are steadier compared with the wave of anxiety that washed across assets ahead of her arrival. But wariness was still evident in a climb in the yen and gold.

The two-year Treasury yield remained above 3% following a selloff in bonds on Tuesday sparked by Fed officials indicating the central bank has some way to go to curb inflation. That lead traders to trim wagers on policy easing in 2023.

China, which regards Taiwan as part of its territory, announced missile tests and military drills around the island after Pelosi became the highest-ranking American politician to visit in 25 years. China also halted natural sand exports to Taiwan and some fish and fruit imports from the island.

While fears of an acute deterioration in US-China ties appear to have cooled, the ill-will highlights the risk of longer term economic decoupling with an array of potential impacts, such as stickier inflation as supply chains adjust.

“Pelosi’s trip might exacerbate the already strained US-China relationship, and impede on growth if more counter-productive measures are deployed,” said Bernard Shaw, an Asia bond syndicate banker at Daiwa Capital Markets Singapore. He added US tariffs on Chinese goods seem likely to stay in place.

Fed signals

Meanwhile, comments from Fed officials including Mary Daly, Loretta Mester and Charles Evans served to highlight a challenging backdrop of rising borrowing costs, price pressures and slowing economic growth.

San Francisco Fed President Daly said the Fed has “a long way to go” on reaching price stability around a 2% inflation target. Cleveland counterpart Mester said she wants to see “very compelling evidence” that month-to-month price increases are moderating.

“It’s hard to see any meaningful upside in equities right now,” Xi Qiao, managing director for global wealth management at UBS Group AG, said on Bloomberg Television. “The market is going to trade pretty mixed, stay choppy until we have a little bit more certainty.”

Elsewhere, oil traded at about $94 a barrel ahead of an OPEC+ crude production meeting. Bitcoin dropped under $23,000.

What to watch this week:

  • OPEC+ meeting on output, Wednesday
  • US factory orders, durable goods, ISM services, Wednesday
  • BOE rate decision, Thursday
  • US initial jobless claims, trade, Thursday
  • Cleveland Fed President Loretta Mester due to speak, Thursday
  • US employment report for July, Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures added 0.3% as of 6:30 a.m. in London. The S&P 500 fell 0.7%
  • Nasdaq 100 futures rose 0.1%. The Nasdaq 100 fell 0.3%
  • Japan’s Topix index rose 0.3%
  • South Korea’s Kospi index gained 0.7%
  • Hong Kong’s Hang Seng index was up 0.7%
  • China’s Shanghai Composite index rose 0.5%
  • Australia’s S&P/ASX 200 index fell 0.4%
  • Euro Stoxx 50 futures were down 0.1%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.1%
  • The euro was at $1.0178, up 0.1%
  • The Japanese yen was at 133.04 per dollar, up 0.1%
  • The offshore yuan was at 6.7613 per dollar, up 0.3%

Bonds

  • The yield on 10-year Treasuries fell four basis points to 2.71%
  • Australia’s 10-year yield increased 10 basis points to 3.08%

Commodities

  • West Texas Intermediate crude was at $94.25 a barrel, down 0.2%
  • Gold was at $1 767.55 an ounce, up 0.4%
© 2022 Bloomberg

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