Stocks drop, treasuries climb as sentiment sours: markets wrap

Asian stocks fell and Treasuries rose after Federal Reserve minutes showed officials face a delicate balancing act to quell inflation while averting recession and as investors weighed a dim Chinese economic outlook.

Losses in Japan, China and a Hong Kong tech index sapped an Asian equity gauge. US contracts wavered after Wall Street shares declined for the first time in four days, including a more than 1% drop in the Nasdaq 100 index.

Fed officials saw a need to eventually dial back the pace of interest-rate increases and warned against over-tightening that could hurt the economy, but also flagged the risk of inflation pressures becoming entrenched.

The advance in Treasuries lowered the 10-year yield to about 2.87%. A dollar gauge drifted higher. Oil hovered around $88 a barrel, gold ticked higher and Bitcoin was little changed.

Swaps tied to Fed policy meeting dates indicated lower odds of a 75 basis points hike next month as opposed to a half-point move. Expectations of slower policy tightening and a pivot to cuts later next year have already contributed to a 12% jump in global stocks from June lows. The question is whether that’s too optimistic. A darker scenario is of persistent price pressures forcing restrictive borrowing costs even as the economy shrinks.

“People are a little overly optimistic about how likely it is that we can solve the inflation problem quickly and in a way where we don’t have to include more policy and more rising rates,” Kathryn Kaminski, AlphaSimplex Group chief research strategist and portfolio manager, said on Bloomberg TV.

Meanwhile, Goldman Sachs Group Inc. economists downgraded their forecast for China’s full-year expansion to 3% from 3.3%. The nation is hamstrung by a property crisis, rolling Covid curbs and stressed power supplies.

‘Steep decline’

Chinese state media said local governments could sell more than $229 billion of bonds to fund infrastructure investment and plug budget gaps in a bid to shore up growth.

“We still have to absorb what’s going on in China and get more transparency,” Loreen Gilbert, WealthWise Financial chief executive officer, said on Bloomberg Television. “We may be looking in the two handle instead of three on GDP. That is a steep decline in the Chinese economy and that has not been priced in either domestically for China or globally.”

The US and Taiwan started formal negotiations on a bilateral trade initiative, a step which risks inflaming already high tensions with China.

Here are some key events to watch this week:

  • U.S. existing home sales, initial jobless claims, Conference Board leading index, Thursday
  • Fed’s Esther George, Neel Kashkari speak at separate events, Thursday

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.1% of 6:30 a.m. in London. The S&P 500 fell 0.7%
  • Nasdaq 100 futures dropped 0.1%. The Nasdaq 100 fell 1.2%
  • Japan’s Topix index slid 0.8%
  • South Korea’s Kospi index was down 0.3%
  • Hong Kong’s Hang Seng Index dipped 0.6%
  • China’s Shanghai Composite Index declined 0.5%
  • Australia’s S&P/ASX 200 index lost 0.2%
  • Euro Stoxx 50 futures gained 0.2%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.1%
  • The euro was at $1.0172
  • The Japanese yen was at 135.03 per dollar
  • The offshore yuan was at 6.8059 per dollar, down 0.2%

Bonds

  • The yield on 10-year Treasuries fell about three basis points to 2.87%
  • Australia’s 10-year bond yield advanced five basis points to 3.32%

Commodities

  • West Texas Intermediate crude rose 0.2% to $88.26 a barrel
  • Gold was at $1,764.21 an ounce, up 0.1%
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