Stock Rally Sputters in Asia Amid Growth Concerns: Markets Wrap

  • Eyes on ECB meeting as investors ponder peak inflation
  • Europe’s geopolitical risks remain a focus for investors

Asian stocks slid with US futures Thursday as investors weighed signals from the latest corporate earnings and geopolitical risks in Europe.

An Asian stock gauge is on track to end a three-day winning streak, dragged down by Hong Kong. Futures retreated in the US and Europe, where Italy’s government looked set to collapse. The S&P 500 posted its first back-to-back gain in almost two weeks, while the Nasdaq 100 outperformed.

The euro gained ahead of a European Central Bank meeting where it is expected to hike for the first time in more than a decade, almost certainly raising rates by 25 basis points. It will also unveil its new crisis management tool. The dollar edged lower.

The yen was under pressure after the Bank of Japan maintained its policy rate and lowered its economic growth forecast for this year. Treasury yields slipped. Gold was near an 11-month low.

Bitcoin dropped below $23,000. Tesla Inc. disclosed that it sold about 75% of its holdings of cryptocurrency during the second quarter.

Risk sentiment remains fragile as investors debate whether equities have reached a trough after this year’s selloff amid the war in Ukraine, a slowdown in China and the prospect of a US recession. Investors are also assessing earnings to gauge how companies are managing amid the highest inflation in generations and escalating borrowing costs.

Many stocks “are still in very distinct downtrends so you can see a rally off maybe an oversold level but really if you are not starting to recover and break into a better uptrend it really remains to be seen if this can continue,” said Cameron Dawson, NewEdge Wealth chief investment officer. “So it’s more a relief at this point and not necessarily a trend change.”

Geopolitics is adding to investors’ skittishness as well. The European Union is preparing for a scenario where Russia halts gas exports to retaliate against sanctions over its invasion of Ukraine. Russian President Vladimir Putin signalled that Europe will start getting gas again through a key pipeline, but warned that unless a spat over sanctioned parts is resolved, flows will be tightly curbed.

While the market may have incorporated a lot of global economic growth downgrades, “it certainly isn’t helpful for some forms of risk sentiment and perhaps business confidence as well,” John Vail, the chief global strategist at Nikko Asset Management Co., said on Bloomberg Television.

Meanwhile, US President Joe Biden said he expects to speak to Chinese leader Xi Jinping “within the next 10 days” as Washington considers lifting some tariffs on Chinese imports.

Oil was back below $100 a barrel as growing stockpiles of crude and gasoline tempered fears of a tight market.

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Key events to watch this week:

  • European Central Bank rate decisions. Thursday
  • Nord Stream 1 pipeline is scheduled to reopen following maintenance. Thursday

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.2% as of 12:30 p.m. in Tokyo. The S&P 500 rose 0.6%
  • Nasdaq 100 futures fell 0.3%. The Nasdaq 100 rose 1.6%
  • Topix index fell 0.3%
  • Kospi index added 0.5%
  • Hang Seng Index slid 1.1%
  • Shanghai Composite Index shed 0.5%
  • Australia’s S&P/ASX 200 Index added 0.1%
  • Euro Stoxx 50 futures lost 0.5%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.1%
  • The euro was at $1.0210, up 0.3%
  • The Japanese yen was at 138.35 per dollar, down 0.1%
  • The offshore yuan was at 6.7714 per dollar, added 0.1%

Bonds

  • The yield on 10-year Treasuries fell about one basis point to 3.01%
  • Australia’s 10-year bond yield lost one basis point to 3.53%

Commodities

  • West Texas Intermediate crude fell 0.7% to $99.16 a barrel
  • Gold was at $1,692.20 an ounce, down 0.3%
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