Asian Stocks Track US Declines, Eyes on China GDP: Markets Wrap

(Bloomberg) — Stocks in Asia fell, tracking Wall Street shares lower, after the latest evidence of stubborn US inflation spurred bets the Federal Reserve will be in no rush to cut rates.

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MSCI’s Asia Pacific Index – a gauge for benchmarks in the region – slipped the most in three months as benchmarks from Hong Kong to Japan, South Korea were all in the red. Futures contracts for US shares steadied in Asian trading after the S&P 500 erased earlier gains and fell more than 1% in a volatile session.

China unexpectedly weakened its yuan defense as pressure from a resurgent dollar and poor sentiment pressured it toward a policy red line. A gauge of emerging-markets currencies fell to a year-to-date low after the offshore yuan slid in reaction to the weaker reference rate.

Investors will now turn their focus to China’s torrent of economic indicators Tuesday. The slowdown in the nation’s economy in the first quarter probably wouldn’t be a strong start to a year in which the government has set an ambitious 5% target, according to Bloomberg Economics. Ten-year bond yields are poised to break to the lowest level since 2002 on growth expectations.

“China’s monthly data dump is released today and is likely to reveal a moderation in economic activity,” said Kyle Rodda, senior market analyst at Capital.Com Inc. While the Chinese economy is showing signs of recovery, “it remains uncertain the strength of the growth impulse and whether there’s momentum for the economy to reach the central government’s ‘about 5%’ growth target,” he added.

Treasuries steadied Tuesday after bond yields jumped to new year-to-date highs on stronger-than-expected retail sales data. Oil gained as Israel vowed to respond to an unprecedented attack by Iran, keeping tensions elevated in the Middle East.

“Stocks began to violate uptrends and pull back,” said Craig Johnson at Piper Sandler. “Interest rates are expected to stay higher for longer. A more cautious and tactical approach is favored as earnings season gets underway.”

Elsewhere, the Japanese yen remained under pressure, after surging to a new 34-year low against the dollar overnight. The increasing risk that authorities in Tokyo may intervene in the market to stem the drop still lingers, after Japan’s finance minister warned that he’s ready to take all available measures in the foreign exchange market if needed.

Fear Gauge

Volatility perked up, with the premium for one-month put options to protect against a pullback in US equities hitting the highest since October. Wall Street’s “fear gauge” — the VIX — hit levels unseen this year. The S&P 500 broke below 5,100, dropping to the lowest in almost two months. The tech-heavy Nasdaq 100 slid over 1.5%. Both gauges breached their 50-day moving averages — seen as a bearish signal by several chartists. Banks outperformed on a surprise profit from Goldman Sachs Group Inc.

Treasury 10-year yields spiked on Monday, while those on two-year notes came close to 5%. Bonds were also under pressure as JPMorgan Chase & Co. and Wells Fargo & Co. tapped the US high-grade bond market, the first in a likely parade of bond sales from banks after results.

US retail sales rose by more than forecast in March and the prior month was revised higher, showcasing resilient consumer demand that keeps fueling a surprisingly strong economy. As long as a robust labor market supports household demand, there’s a risk that inflation will become entrenched.

“If the S&P 500 is going to avoid its first three-week losing streak since last September, investors will need to move past concerns that rate cuts will be delayed because of sticky inflation,” said Chris Larkin at E*Trade from Morgan Stanley. “In the near-term, that could come down to the tone set by the first full week of earnings season, but geopolitical tensions in the Middle East remain a wild card.”

In commodities, West Texas Intermediate advanced in Asia after reclaiming its $85 mark on Monday. Top Israeli military officials reiterated the country has no choice but to answer Iran’s weekend attack. Gold was steady in early trading.

Key events this week:

China retail sales, industrial production, GDP, Tuesday
Germany ZEW survey expectations, Tuesday
US housing starts, industrial production, Tuesday
Morgan Stanley, Bank of America earnings, Tuesday.
Fed Vice Chair Philip Jefferson speaks, Tuesday
BOE Governor Andrew Bailey speaks, Tuesday
IMF publishes its latest world economic outlook, Tuesday
Eurozone CPI, Wednesday
Fed issues its Beige Book, Wednesday
Cleveland Fed President Loretta Mester speaks, Wednesday
Fed Governor Michelle Bowman speaks, Wednesday
BOE Governor Andrew Bailey speaks, Wednesday
Taiwan Semiconductor earnings, Thursday
US Conf. Board leading index, existing home sales, initial jobless claims, Thursday
Fed Governor Michelle Bowman speaks, Thursday
New York Fed President John Williams speaks, Thursday
Atlanta Fed President Raphael Bostic speaks, Thursday
BOE Deputy Governor Dave Ramsden and ECB Governing Council member Joachim Nagel speak, Friday
Chicago Fed President Austan Goolsbee speaks, Friday

Some of the main moves in markets:

Stocks

S&P 500 futures were little changed as of 10:38 a.m. Tokyo time
Nikkei 225 futures (OSE) fell 1.8%
Japan’s Topix fell 1.5%
Australia’s S&P/ASX 200 fell 1.3%
Hong Kong’s Hang Seng fell 1.3%
The Shanghai Composite fell 0.7%
Euro Stoxx 50 futures fell 1%

Currencies

The Bloomberg Dollar Spot Index rose 0.2%
The euro fell 0.1% to $1.0612
The Japanese yen was little changed at 154.34 per dollar
The offshore yuan fell 0.3% to 7.2773 per dollar
The Australian dollar fell 0.5% to $0.6413

Cryptocurrencies

Bitcoin rose 0.9% to $63,738.66
Ether rose 1% to $3,113.11

Bonds

The yield on 10-year Treasuries was little changed at 4.59%
Japan’s 10-year yield advanced 1.5 basis points to 0.870%
Australia’s 10-year yield advanced three basis points to 4.30%

Commodities

This story was produced with the assistance of Bloomberg Automation.