Stocks fall on China data risk sentiment: Markets wrap

(Bloomberg) — Futures for U.S. and European benchmarks fell on Wednesday, along with Asian shares, as growth in China’s services sector slowed, dampening appetite for stocks.

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Dollar strength rose as US bond trading resumed following the Independence Day holiday, while the yield on policy-sensitive two-year Treasuries slipped two basis points to 4.92%.

Early losses in Chinese stocks deepened and the offshore yuan reversed gains after the Caixin China Services Purchasing Managers’ Index came in weaker than expected, underscoring concerns about a modest recovery in the world’s second-largest economy.

The fall in the yuan was also notable because it came despite the central bank earlier maintaining support for the currency in its daily fix.

“It’s refocusing on slowing growth and the recent uptick in geopolitical tensions,” Saru Sanana, market strategist at Saxo Capital Markets, said of the China services data.

Dim confidence in the outlook for China has prompted investors to lower expectations for gains in Asian stocks this year. Bloomberg News’ survey of 17 strategists and fund managers indicated that MSCI Inc’s Asia-Pacific index could rise only 5% by the end of the year from Tuesday’s close.

The Asia-wide gauge fell more than 0.5% on Wednesday as shares in Japan, South Korea and Australia fell. The S&P 500 inched down 0.1% while futures for the Euro Stoxx 50 lost 0.3%.

Traders will also watch buying services for managers’ index data for the euro area on Wednesday, and then minutes from the Federal Reserve’s latest policy meeting, which rattled Wall Street.

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The yen fluctuated on the stronger side of the greenback against the 145 level after weakness fueled unrest among policymakers in Tokyo. The Australian dollar, sensitive to China’s outlook, fell following the release of PMI data.

Elsewhere, oil weakened after Saudi Arabia and Russian production cuts rallied on Tuesday. Traders are awaiting critical commentary from the Saudi energy minister. Gold changed little.

After US stocks rallied strongly in the first half of the year, investors now worry that higher rates and a poor economic backdrop will limit gains from here. In cautionary notes, Goldman Sachs Group Inc. Strategists wrote that it is too early to rule out the risk of higher interest rates on equities.

Not everyone is dark.

“As we approach a recession, we want to be a more conservative, high-quality tilt,” Tai Hui, chief market strategist for Asia Pacific at JPMorgan Asset Management, told Bloomberg Television. “But once the economy, once all the bad news is out, I think that’s where equities will really shine.”

Looking further ahead, Friday’s US non-farm payrolls report will be a key event for markets that will provide further clues on the path of monetary policy.

Highlights of this week:

• Eurozone S&P Global Eurozone Services PMI, PPI, Wednesday

• The OPEC international seminar, with speakers including OPEC+ oil ministers, begins in Vienna on Wednesday

• The FOMC will release minutes from its June policy meeting on Wednesday

• New York Fed President John Williams in a “fireside chat” at the Federal Reserve Research Association’s meeting at the New York Fed on Wednesday.

• US Initial Jobless Claims, Trade, ISM Services, Jobs, Thursday

• Dallas Fed President Lori Logan speaks on a panel about policy challenges for central banks at Thursday’s Zebra meeting.

• US unemployment rate, non-farm payrolls, Friday

• The ECB’s Christine Lagarde addresses an event in France on Friday

Some key moves in today’s markets:

Shares

• S&P 500 futures were down 0.1% at 7:09 a.m. London time.

• Nasdaq 100 futures fell 0.2%

• Japan’s topics were marginally weaker

• Australia’s S&P/ASX 200 fell 0.3%

• Hong Kong’s Hang Seng fell 1.6%

• The Shanghai composite fell 0.6%

• Euro stocks 50 futures fell 0.3%

Coins

• The Bloomberg Dollar Spot Index was little changed

• The euro was unchanged at $1.0879

• The Japanese yen fell 0.1% to 144.63 per dollar

• The offshore yuan fell 0.3% to 7.2467 per dollar

• The Australian dollar fell 0.1% to $0.6684

• The British pound was little changed at $1.2702

Cryptocurrencies

• Wikipedia changed little to $30,805.7

• Ether fell 0.4% to $1,934.81

Bonds

goods

This story was produced with the help of Bloomberg Automation.

–With assistance from John Cheng.

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