Bonds gained along with the dollar on Tuesday, while stocks fell as fresh concerns around China’s economic recovery and the state of US banks sent investors scurrying for havens.
Miners and carmakers led a drop in the Stoxx Europe 600 index after China’s trade plunged in July as slowing global demand clouded the outlook for exports, while domestic pressures weighed on imports. There were also further signs of trouble in China’s ailing real estate sector: Country Garden Holdings Co.’s stock and bonds plunged, with short-sellers swarming over China’s sixth-largest developer by sales, as scrutiny intensified over its operations and ability to meet debt payments.
Banks were among the leading decliners in Europe after a report by Moody’s Investors Service lowering credit ratings for 10 small and midsize US lenders, with the rating agency signaling it may downgrade major peers. Italy’s surprise tax on “extra profits” for lenders also weighed on the sector.
US equity futures dropped. The 10-year Treasury yield fell about eight basis points. European bonds also gained, with the 10-year German falling nine basis points. A gauge of the dollar climbed about 0.3%.
The renewed focus on the banking sector knocked optimism on Wall Street, already dented by the latest comments from a Federal Reserve official that pointed to more rate hikes to tame inflation. Fed Governor Michelle Bowman said Monday that additional hikes “will likely be needed” and that sent yields on the two-year to climb before paring some of its advance.
Investors, rattled by the collapse of a regional banks in California and New York this year, have been watching closely for signs of stress in the industry as rising interest rates force firms to pay more for deposits and bump up the cost of funding from alternative sources. At the same time, those higher rates are eroding the value of banks’ assets and making it harder for commercial real estate borrowers to refinance their debts, potentially weakening lenders’ balance sheets.
The release of the consumer price index from the US due later this week will also provide investors with clues on the Fed’s policy outlook. Fed Bank of New York President John Williams cited the necessity to keep policy restrictive “for some time” — while noting rate cuts may be warranted next year if inflation slows.
Meanwhile, the bulging sales of Treasuries are about to deliver a major test of investor demand and determine whether a selloff has room to run as the market braces for the biggest round of refunding auctions since last year. The bond market has to absorb a combined $103 billion of 3-, 10- and 30-year auctions before the week is out — up $7 billion from the May slate.
The Hang Seng China Enterprises Index fell over 2%, the worst-performing stock gauge in the region. The greenback gained on concern that China may be relaxing its grip on the yuan, which helps anchor other foreign-exchange rates in Asia. Treasuries rose.
The People’s Bank of China set Tuesday’s yuan reference rate at 7.1565 per dollar, revising an earlier fixing in the morning when it had indicated a stronger fixing of 7.1365. The Chinese central bank has been supporting the currency.
The yen led declines against the dollar among Group-of-10 currencies. Data earlier showed that growth in Japanese workers’ wages unexpectedly slowed in June, clouding prospects for the Bank of Japan’s sustainable inflation goal.
Elsewhere, oil declined ahead of US figures on the outlook and stockpiles as the global market tightened amid OPEC+ supply cuts. Gold was slightly lower.
Key events this week:
Some of the main moves in markets:
This story was produced with the assistance of Bloomberg Automation.
Investors should "stay light on your feet," the head of US fixed income at RBC says.
Federal complaint filed in Texas court by a consortium of 11 states argues the fund giants used their market power to pressure energy companies and ultimately hurt consumers.
B. Riley Financial's share price has dropped more than 68 percent over the past 12 months.
The defectors, separately located in the Chicagoland and Texas, reportedly managed more than $260 million combined.
Most of the proceeds withdrawn from the client's IRA actually went to an account and was used for a third party's benefit, according to CFP Board order.
Streamline your outreach with Aidentified's AI-driven solutions
This season’s market volatility: Positioning for rate relief, income growth and the AI rebound
