Stocks and bonds gain as China acts on debt

Stocks and bonds rose as China moved to address a worsening property slump, shoring up confidence in global markets.  

US and European equity futures advanced, while bond yields ticked lower. The moves came after China’s banking regulator announced it would set up a task force to examine risks at Zhongzhi Enterprise Group Co.

The company, one of the nation’s largest largest private wealth managers, had missed payments on investment products sold to high-net worth clients and corporations. That came as news broke that Chinese developer Country Garden Holdings Co. is seeking to extend a maturing bond for the first time.

That came as news broke that Chinese developer Country Garden Holdings Co. is seeking to extend a maturing bond for the first time. 

“It’s such a significant financial shock to the system that the authorities will do everything they can to contain it,” said Andrew Bell, chief executive officer at Witan Investment Trust. “I suspect the risk of contagion beyond China is pretty low. But it is another reason for markets to be a little bit cautious over the summer.”

Country Gardens is soliciting some bondholders’ feedback on a proposal to extend payment of a yuan note due Sept. 2, people familiar with the matter said, asking not to be identified discussing a private matter. Once China’s largest private-sector developer by sales, the company is at risk of joining a slew of defaulters if it fails to make coupon payments on two dollar bonds within a 30-day grace period. 

Shares in mainland China declined while almost all of the 80 members of Hong Kong’s Hang Seng Index slipped Monday. The CSI 300 Index, which is the benchmark of onshore Chinese shares, is now close to erasing all of the gains it made after the Politburo meeting last month amid signs of deterioration in the economy. 

Yields on government bonds in Europe ticked lower. Treasury yields were steady near levels last seen in November on speculation the Federal Reserve will keep interest rates in restrictive territory and disappoint investors hoping for easier policy. 

Focus later this week will be on minutes of Fed’s latest policy meeting as traders seek clues on the central bank’s next move.

“Equity markets have had quite a strong rally over the last two or three months on hopes that we’re about to see the peak in interest rates,” Bell said. “The market was traveling a little bit on fumes, and now we have to live through the good news before before you can jump another step higher.”

The yen steadied after breaching its year-high level of 145.07 versus the dollar as investors started to monitor for any signs the government may intervene as it did last year. 

The ruble weakened beyond the psychologically important level of 100 to the dollar for the first time since March last year, as Russia’s war in Ukraine drags on and international sanctions throttle the economy. 

Key events this week:

• China medium-term lending, retail sales, industrial production, fixed-asset investment, FX net settlement, Tuesday
• Japan industrial production, GDP, Tuesday
• UK jobless claims, unemployment, Tuesday
• US retail sales, empire manufacturing, business inventories, cross-border investment, Tuesday
• Reserve Bank of Australia policy minutes, Tuesday
• Federal Reserve Bank of Minneapolis President Neel Kashkari speaks, Tuesday
• China property prices, Wednesday
• Eurozone industrial production, GDP, Wednesday
• UK CPI, Wednesday
• US FOMC minutes, housing starts, industrial production, Wednesday
• US initial jobless claims, US Conf. Board leading index, Thursday
• Eurozone CPI, Friday

Some of the main moves in markets:

STOCKS

• The Stoxx Europe 600 rose 0.2% as of 10:06 a.m. London time
• S&P 500 futures rose 0.2%
• Nasdaq 100 futures rose 0.4%
• Futures on the Dow Jones Industrial Average rose 0.1%
• The MSCI Asia Pacific Index fell 1.2%
• The MSCI Emerging Markets Index fell 0.9%

CURRENCIES

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0943
• The Japanese yen was little changed at 144.94 per dollar
• The offshore yuan fell 0.2% to 7.2768 per dollar
• The British pound was unchanged at $1.2696

CRYPTOCURRENCIES

• Bitcoin was little changed at $29,385.29
• Ether fell 0.3% to $1,847.1

BONDS

• The yield on 10-year Treasuries was little changed at 4.15%
• Germany’s 10-year yield declined one basis point to 2.61%
• Britain’s 10-year yield was little changed at 4.52%

COMMODITIES

• Brent crude fell 0.4% to $86.49 a barrel
• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.