(Bloomberg) – Futures on US and European benchmarks fell along with Asian stocks on Wednesday, as growth in China’s services industry slowed and demand for shares waned.
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An indicator of dollar strength edged higher, while the yield on policy-sensitive two-year government bonds fell about two basis points to 4.92% as US bond trading resumed after Independence Day.
Initial losses in Chinese stocks deepened and the offshore yuan reversed its rise after Caixin China’s Services Purchasing Managers’ Index came in weaker than expected, underscoring concerns over a sluggish recovery in the world’s second largest economy.
The yuan’s decline was also notable because it came despite the central bank previously maintaining support for the currency in its daily fix.
“This puts the focus back on slowing growth momentum and the recent intensification of geopolitical fears,” said Charu Chanana, market strategist at Saxo Capital Markets, of the China services data.
Easing optimism about China’s prospects has also led investors to lower their expectations for earnings from Asian equities this year. A Bloomberg News survey of 17 strategists and fund managers suggests that MSCI Inc.’s Asia-Pacific index may be up only about 5% by year-end from Tuesday’s close.
The Asia-wide index fell more than 0.5% on Wednesday as stocks in Japan, South Korea and Australia also fell. Futures for the S&P 500 were down 0.1%, while those for the Euro Stoxx 50 lost 0.3%.
Traders will also be following Wednesday’s euro-zone services PMI data and later minutes from the Federal Reserve’s latest monetary policy meeting, which left Wall Street baffled.
The story goes on
The yen has fluctuated on the stronger side against the greenback at the 145 level after a period of weakness caused concern among Tokyo policymakers. The Australian dollar, sensitive to China’s outlook, fell after the release of PMI data.
Elsewhere, oil prices weakened after gaining on Tuesday on production cuts in Saudi Arabia and Russia. Traders are awaiting potentially critical comments from the Saudi energy minister. Gold hasn’t changed much.
After US stocks rallied in the first half of the year, investors are now concerned that higher interest rates and a deteriorating economic environment will limit gains going forward. Strategists at Goldman Sachs Group Inc. also warn of caution, writing that it is too early to rule out the risk of shares being weighed down by higher interest rates.
Not everyone is so gloomy.
“As we approach a slowdown, we want to be more conservative and higher quality,” Tai Hui, chief market strategist for Asia-Pacific at JPMorgan Asset Management, told Bloomberg Television. “But once the economy and all the bad news comes out, that’s where I think equity really will shine.”
Looking further ahead, Friday’s US non-farm payrolls report will be a key event for markets, offering further clues on monetary policy developments.
Important events this week:
Eurozone S&P Global Eurozone Services PMI, PPI, Wednesday
The international OPEC seminar with speakers, including OPEC+ oil ministers, begins on Wednesday in Vienna
FOMC releases June policy meeting minutes on Wednesday
New York Fed President John Williams during the “fireside chat” at the Central Bank Research Association meeting at the New York Fed on Wednesday
US Initial Jobless Claims, Commerce, ISM Services, Jobs, Thursday
Dallas Fed President Lorie Logan addresses a panel discussion on the policy challenges facing central banks at Thursday’s CEBRA meeting
US Unemployment Rate, Nonfarm Payrolls, Friday
The ECB’s Christine Lagarde speaks about an event in France on Friday
Some of the key moves in the markets today:
Shares
S&P 500 futures were down 0.1% as of 7:09 a.m. London time
Nasdaq 100 futures down 0.2%
Japan’s Topix was slightly weaker
Australia’s S&P/ASX 200 fell 0.3%
Hong Kong’s Hang Seng fell 1.6%
The Shanghai Composite fell 0.6%
Euro Stoxx 50 futures down 0.3%
currencies
The Bloomberg Dollar Spot Index is little changed
The euro was unchanged at $1.0879
The Japanese yen fell 0.1% to 144.63 per dollar
The offshore yuan fell 0.3% to 7.2467 per dollar
The Australian dollar fell 0.1% to $0.6684
The British pound was little changed at $1.2702
cryptocurrencies
Bitcoin is little changed at $30,805.7
Ether fell 0.4% to $1,934.81
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raw materials
This story was created with the support of Bloomberg Automation.
– With support from John Cheng.
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