Asia Stocks Fall on Cooling Fed Bets, China Rout: Markets Wrap

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(Bloomberg) — Asian equities slid and European stocks futures were little changed as traders reassessed their bets that the Federal Reserve will aggressively cut rates next year. The dollar was steady.

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An index of Asian stocks was on pace for a third daily drop, with benchmarks in Hong Kong and China sliding the most. The Euro Stoxx 50 futures were flat, while US stocks futures extended losses following Monday’s declines when the S&P 500 fell from the highest since March 2022.

November’s epic rallies in global equities and bonds have failed to continue into this month, suggesting some investors are concerned the market’s rate-cut wagers have been too aggressive. Nearly 125 basis points of easing are priced in through next year’s December Fed meeting — equal to about five quarter-point cuts.

Treasuries edged up in Asia after a fall in the previous session added nine basis points to the two-year yield. US jobs data later in the week will help identify the prospect for a soft landing in the world’s largest economy.

“I think people are going to get a lump of coal around Christmas” in terms of anticipation around “big rate cuts,” Cole Smead, portfolio manager at Smead Capital Management told Bloomberg TV. “I think the risk to stocks is economic growth,” he said.

A selloff in Chinese stocks extended, hurting sentiment in Asia. A benchmark for mainland shares is trading at its lowest since 2019, with better-than-expected services activity data failing to assuage concerns over the economy’s muddled growth trajectory.

Two meetings of China’s top officials this month will be scrutinized for signs the world’s second-largest economy is set to be more aggressive with its growth goal for 2024.

“The economy has been pretty sluggish as this lack of confidence drags on,” Yan Wang, chief emerging markets and China strategist for Alpine Macro Inc, said about China on Bloomberg Television. “Going into the new year, the trajectory will not improve much if there is no major change,” in terms of official stimulus, he said.

The Australian dollar slipped and government bonds advanced as the Reserve Bank of Australia held interest rates steady with a dovish tilt, prompting traders to trim rate hike bets. The yen strengthened after initially whipsawing as Tokyo inflation slowed more than expected, a development that supports the Bank of Japan’s view that price pressures are easing.

Volatile Markets

US stocks are headed for a rocky end to the year, according to Morgan Stanley’s Michael Wilson. The strategist said December could bring “near-term volatility in both rates and equities” before more constructive seasonal trends as well as the “January effect” support equities next month.

The Fed’s next steps could help reignite volatility that has recently shown signs of anemia. Technically “overbought” conditions and bullish positioning have left markets vulnerable to corrections after the historic rallies in both equities and Treasuries last month.

“The biggest near-term risk for the markets could simply be that after a phenomenal one-month rally, a period of consolidation may be a necessary breather,” said Jason Draho at UBS Global Wealth Management. “A lot of good news is priced in, and investors seeing little imminent downside risk does make the markets vulnerable to even small disappointments.”

Read: Treasury Strategists Debate Timing of Fed Cuts: Research Roundup

Read: Most Expect Their Investments to Do Better in 2024: MLIV Pulse

Oil steadied after a three-day loss as Saudi Arabia said recent cuts by OPEC+ would be honored in full and could be extended. Gold also rebounded after Monday selling, when it initially touched a fresh record high.

Key events this week:

Eurozone S&P Global Services PMI, PPI, Tuesday
US ISM Services, Job openings, Tuesday
Eurozone retail sales, Wednesday
Germany factory orders, Wednesday
US ADP private payrolls, trade balance, Wednesday
CEOs of the biggest banks on Wall Street, including JPMorgan, Citigroup, Goldman Sachs, Morgan Stanley and Bank of America, expected to testify on regulatory oversight to the Senate banking committee, Wednesday
Bank of Canada monetary policy meeting, Wednesday
Bank of England issues biannual stability report on UK financial system, holds news conference, Wednesday
China trade, forex reserves, Thursday
Eurozone GDP, Thursday
Germany industrial production, Thursday
US wholesale inventories, initial jobless claims, Thursday
Germany CPI, Friday
Japan household spending, GDP, Friday
Reserve Bank of Australia’s head of financial stability Andrea Brischetto speaks at Sydney Banking and Financial Stability conference, Friday
US jobs report, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

S&P 500 futures fell 0.2% as of 3:15 p.m. Tokyo time
Nasdaq 100 futures decline 0.3%
S&P/ASX 200 futures were little changed
Hong Kong’s Hang Seng fell 1.6%
The Shanghai Composite fell 0.9%
Euro Stoxx 50 futures were little changed

Currencies

The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0845
The Japanese yen rose 0.2% to 146.89 per dollar
The offshore yuan was little changed at 7.1471 per dollar

Cryptocurrencies

Bitcoin fell 0.3% to $41,905.17
Ether was little changed at $2,237.02

Bonds

Commodities

West Texas Intermediate crude rose 0.1% to $73.14 a barrel
Spot gold rose 0.2% to $2,034.25 an ounce

This story was produced with the assistance of Bloomberg Automation.