Chinese Shares Surge at Reopen, Asian Stocks Fall: Markets Wrap

(Bloomberg) — Chinese shares jumped, catching up to a stock rally fueled by stimulus measures after they reopened following a weeklong holiday. Asian equities more broadly fell, and the yen gained.

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The benchmark CSI 300 index gained as much as 11% to start the session. Shares dropped in Japan, South Korea and Hong Kong after Wall Street was dragged down by a tech selloff, geopolitical angst and bets on a smaller Federal Reserve rate cut.

Investors are focused on a briefing by the nation’s top economic planner set for 10 a.m. for clues on more policy measures. The government unleashed a slew of stimulus measures before the Golden Week holiday break and Chinese shares have soared since then. Beijing’s use of fiscal firepower has the potential to unlock between 4 trillion yuan ($570 billion) and 10 trillion yuan in stimulus, according to economist Jia Kang.

“There is definitely a lot of support for the market coming through,” Kerry Craig, JPMorgan Asset Management global market strategist, said on Bloomberg TV. “There is just a case of whether the market may be a little bit disappointed if they don’t get what they expect on that fiscal package.”

An overheating of the A-share market and the Chinese government’s delivery on its recently announced policy stimulus are among the risks investors should watch amid the Chinese stock market rally, according to Morgan Stanley.

Several other investors are also not convinced about how long the rally will sustain. Invesco Ltd., JPMorgan Asset Management, HSBC Global Private Banking and Wealth, and Nomura Holdings Inc. are among those viewing the recent rebound with skepticism and waiting for Beijing to back up its stimulus pledges with real money.

“So while we do anticipate a pop, we do expect more policy news to come out that would support share prices,” said Lorraine Tan, director of Asia Equity Research at Morningstar on Bloomberg TV. “We’d probably be a lot more selective going forward for anybody who wants to play into the uptick,” she said.

The S&P 500 fell 1% on Monday after notching a four-week winning run. Alphabet Inc. sank 2.4% as a judge ruled it must lift restrictions that prevent developers from setting up rival marketplaces that compete with its Google Play Store. Brent crude jumped above $80 a barrel amid mounting tensions in the Middle East. In the wake of Friday’s solid jobs data, Treasuries continued to drop — with the 10-year yield topping 4%.

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“Friday’s strong jobs report not only appeared to kill any chance of a 50-basis-point rate cut in November, it kickstarted chatter about the Fed leaving rates unchanged if economic data continues to come in hotter than expected,” said Chris Larkin at E*Trade from Morgan Stanley. “But as last week showed, geopolitics can’t be ignored.”

The crisis in the Middle East continues to unnerve investors, with fighting escalating Monday on multiple fronts after a year of war. The Israel Defense Forces said it intercepted most of a barrage of rockets fired toward Tel Aviv by Hamas and other Iran-backed groups. Brent crude soared to its highest price since August as speculation increased that Israel may attack Iran’s oil infrastructure. West Texas Intermediate crude rose early Tuesday.

To Dave Sekera at Morningstar, if there is any further geopolitical escalation, that would potentially spur the risk-off trade — with growth shares underperforming value ones.

“Typically, in a risk-off trade, you’re going to see rotation into defense stocks, but I’d be careful if you’re an investor today,” he said. “Some of the defensive sectors today are already overvalued. Unlike a typical risk-off trade, I think oil stocks would go up.”

With the exception of energy shares, every major sector in the S&P 500 dropped Monday. A gauge of the “Magnificent Seven” megacaps slipped 1.9%. Amazon.com Inc. sank 3.1% after Wells Fargo Securities downgraded the shares. Apple Inc. slid 2.3% as a Jefferies analyst said investors have overly optimistic expectations for the latest iPhones. Nvidia Corp. gained. In Asia, Samsung Electronics Co. reported preliminary operating profit that missed estimates.

The VIX volatility gauge jumped to a two-month high. Treasury 10-year yields rose six basis points to 4.03%.

Despite the drop in stocks, two of Wall Street’s top strategists have turned more optimistic on signs of a robust labor market, economic resilience and easing interest rates.

Morgan Stanley’s Michael Wilson raised his view on so-called cyclical stocks relative to safer defensive peers, noting Friday’s blowout payrolls data and expectations of more cuts from the Fed. His peer at Goldman Sachs Group Inc., David Kostin, upgraded his 12-month target for the benchmark to 6,300 points from 6,000. The gauge closed at 5,695.94 Monday.

Key events this week:

• Fed’s Raphael Bostic, Susan Collins, Philip Jefferson and Adriana Kugler speak, Tuesday

• Fed minutes, Wednesday

• Fed’s Lorie Logan, Raphael Bostic, Austan Goolsbee and Mary Daly speak, Wednesday

• US initial jobless claims, CPI, Thursday

• Fed’s John Williams and Thomas Barkin speak, Thursday

• JPMorgan, Wells Fargo kick off earnings season for the big Wall Street banks, Friday

• US PPI, University of Michigan consumer sentiment, Friday

• Fed’s Lorie Logan, Austan Goolsbee and Michelle Bowman speak, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 10:37 a.m. Tokyo time

• Nikkei 225 futures (OSE) fell 1%

• Japan’s Topix fell 1.2%

• Australia’s S&P/ASX 200 fell 0.2%

• Hong Kong’s Hang Seng fell 2.9%

• The Shanghai Composite rose 8.1%

• Euro Stoxx 50 futures fell 0.3%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0983

• The Japanese yen rose 0.2% to 147.89 per dollar

• The offshore yuan rose 0.2% to 7.0566 per dollar

Cryptocurrencies

• Bitcoin fell 0.6% to $62,601.04

• Ether fell 0.3% to $2,433.26

Bonds

• The yield on 10-year Treasuries declined two basis points to 4.01%

• Japan’s 10-year yield was little changed at 0.925%

• Australia’s 10-year yield advanced 11 basis points to 4.19%

Commodities

• West Texas Intermediate crude fell 0.6% to $76.67 a barrel

• Spot gold fell 0.2% to $2,638.60 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Shery Ahn and April Ma.

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