European shares flat, China’s property woes weigh on Asian markets
China’s property woes amplified the case for stimulus even as Beijing seemed deaf to the calls
Sydney — 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 rose above the closelywatched 145 yen level.
There was plenty to be watching elsewhere in the world too, as Argentine voters punished the two main political forces in a primary election on Sunday, pushing a radical libertarian outsider candidate into first place, and pressuring the country’s bonds.
Also, the Russian rouble softened past the psychologically key 100 per US dollar threshold for the first time since March, with President Vladimir Putin’s economic adviser blaming loose monetary policy, a day after a Russian warship fired warning shots at a cargo ship in the southwestern Black Sea.
MSCI’s world index was down 0.3%, with most of the losses driven by Asian stocks. The main ex-Japan index was down 1.2%, 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 0.46%, amid fears that trouble in China’s largest private property developer, Country Garden, could have a chilling effect on the country’s homebuyers and financial institutions.
Country Garden’s shares plunged 18% to a record low on Monday after its onshore bonds were suspended.
“We reckon that markets still underestimate the aftermath of the significant collapse in China’s property sector,” said Nomura analysts in a note.
“The chain reaction triggered by slumping new home sales may lead to a rising number of developers’ defaults, a sharp contraction of government revenue, falling demand for construction materials, declining wages of employees in both the property and government sector, weaker consumption, and faltering financial institutions.”
Not helping the mood was 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.
US share futures shrugged off the news however, rising 0.2%, following losses on Friday when surprisingly high readings on US producer prices tested market optimism that inflation would cool enough to avoid further rate hikes.
Consumers keep consuming
On this week’s data docket is British inflation and jobs data and figures on US retail sales which are forecast to show a 0.4% pick up in spending, with risks to the upside thanks in part to Amazon's Prime Day.
Such an outcome would challenge the market’s benign outlook for US rates, with futures currently 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 huge government borrowing requirement kept 10-year Treasury yields up at 4.18%, after a rise of 12 basis points last week.
That rise juiced the dollar against the low-yielding yen, hoisting it as far as 145.27 and a peak not seen since November last year.
The euro was more rangebound on the dollar at $1.0954.
The ascent of the dollar and yields was weighing on gold at $1,909 an ounce, having fallen for three weeks in a row.
Oil dipped as concerns about China’s faltering economic recovery and a stronger dollar outgunned seven weeks of gains on tightening supply from Opec+ output cuts.
Brent crude was down 0.6% at $86.23 a barrel, while US crude was down 1% at $82.48.
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