LDN - Business

China property fears hurt shares, dollar climbs

[August 14, 2023] By Wayne Cole and Alun John

SYDNEY (Reuters) - Shares slid on Monday as China's property woes amplified the case for stimulus even as Beijing seemed deaf to the calls, while rising Treasury yields lifted the dollar, which briefly poked its head above the closely watched 145 yen level.

There was plenty to be watching on the geopolitical front too, as Argentine voters punished the two main political forces in a primary election on Sunday, pushing a rock-singing libertarian outsider candidate into first place.

A day earlier, a Russian warship fired warning shots at a cargo ship in the southwestern Black Sea, heralding a new stage of the war that could impact oil and food prices. The Russian rouble on Monday softened past the psychologically key 100 per U.S. dollar threshold for the first time since March, with President Vladimir Putin's economic advisor blaming loose monetary policy.

MSCI's world index was down 0.2%, with most of the losses driven by Asian stocks. The main ex-Japan index was down 1.7%, after shedding 2% last week. Japan's Nikkei was off 1.3%.

Europe's broad STOXX 600 benchmark was flat but the miner-heavy and China-exposed FTSE lagged, falling 0.2%.

“A crisis in the Chinese real estate sector is a story the market has heard before and not one which has typically come with a happy ending for stocks,” said AJ Bell investment director Russ Mould.

Trouble in China's largest private property developer, Country Garden, could have a chilling effect on homebuyers and financial institutions.

The company's shares plunged 18% to a record low on Monday after its onshore bonds were suspended.

That was a fresh blow to policymakers trying to shore up confidence in a stuttering economy, aspirations that were not helped by weekend news two Chinese listed companies had not received payment on maturing investment products from Zhongrong International Trust Co.

Chinese blue chips fell 0.73%, on top of a 3.4% decline last week, amid disappointing economic news culminating in a dire report on new bank loans in July.

U.S. share futures shrugged off the news however, rising 0.2%, following losses on Friday when surprisingly high readings on U.S. producer prices tested market optimism that inflation would cool enough to avoid further rate hikes.

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Passersby walk past an electric board displaying Japan's Nikkei share average outside a brokerage in Tokyo, Japan April 18, 2023. REUTERS/Issei Kato

CONSUMERS KEEP CONSUMING

On this week's data docket are figures on U.S. retail sales this week are forecast to show a 0.4% pick up in spending, with risks on the high side thanks in part to Amazon's Prime Day.

Such an outcome would challenge the market's benign outlook for rates, with futures implying a 70% chance the Federal Reserve is done hiking. The market also has more than 120 basis points of cuts priced in for next year starting from around March.

Minutes of the Fed's last meeting are due on Wednesday and could show members wanted to keep their options open on further hikes.

The resilience of the economy combined with a truly massive government borrowing requirement kept 10-year Treasury yields up at 4.15%, after a rise of 12 basis points last week.

That rise juiced the dollar against the low-yielding yen, hoisting it as far as 145.22 and a peak not seen since November last year.

Concerns about possible intervention then saw it edge back to 144.92, though the broad sense in markets is Japanese authorities are not quite ready to step in again to prop up the currency.

The euro was more range-bound on the dollar at $1.0954, though the dollar climbed on its Australian and New Zealand counterparts, as proxies for China risk.

The ascent of the dollar and yields was weighing on gold at $1,914 an ounce, having fallen for three weeks in a row. [GOL/]

Monday saw some profit-taking in oil markets nudging Brent down 0.3% to $86.56 a barrel, while U.S. crude fell 0.37% to $82.9 per barrel.

(Reporting by Wayne Cole and Alun John, additional reporting by Ankur Bannerjee in Singapore; Editing by Sam Holmes and Bernadette Baum)

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