Stocks Pare Gains, Futures Drop After China Rout: Markets Wrap

(Bloomberg) — Stocks in Europe pared gains and US futures declined as a rout in Chinese shares weighed on sentiment while investors await the next batch of earnings from some of the world’s biggest companies. Treasury yields dipped and the dollar gained.

The Stoxx Europe 600 Index held an advance of about 0.4% after rising as much as 1.4% at the open, with disappointing data adding to concerns the euro area is heading for a recession. Prosus NV slumped more than 11% as Chinese tech stocks tumbled, while basic resources and energy shares weighed on the benchmark amid a fall in crude oil and gas prices.

Earnings this week from megacap technology companies — among the key profit-growth engines for the S&P 500 — may give more clues on the resilience of the US economy and the trajectory for stocks. The five biggest tech firms by revenue — Apple Inc., Microsoft Corp., Alphabet Inc., Amazon.com Inc. and Meta Platforms Inc. — are projected to report the steepest contraction in earnings in three years, data compiled by Bloomberg show.

“It’s clear demand is slowing but so far we’ve seen pockets of tech like software, cloud computing still being quite resilient,” said Laura Cooper, a senior investment strategist at BlackRock International Ltd., on Bloomberg TV. “We will be watching for any signs of cracks coming through that could put a dent to some of these earnings expectations.”

A gauge of dollar strength rose in choppy trading that saw wild swings in the yen amid signs of a second intervention from Japanese authorities in two sessions. The pound gained against the greenback and gilts rallied after Boris Johnson pulled out of the race to lead the UK’s ruling Conservative Party, putting former chancellor Rishi Sunak closer to becoming the next prime minister.

China’s yuan and the country’s stocks tumbled in Hong Kong to the lowest level since the depths of the 2008 global financial crisis even as economic growth data beat estimates. The onshore yuan depreciated as much as 0.4%, while the Hang Seng China Enterprises Index, a gauge of Chinese stocks listed in Hong Kong, plunged more than 5% as investors reacted to the risks posed by President Xi Jinping’s move to stack his leadership ranks with loyalists. US-listed Chinese stocks tumbled in premarket trading.

“Market sentiment could remain cautious near-term on China, on concerns of a shift of focus toward more state control versus a market-driven approach under the new leadership team,” said Xiaojia Zhi, the chief China economist at Credit Agricole CIB. “The exit path from zero-Covid is not yet clear.”

Chinese economic data that was delayed last week and published Monday showed a mixed recovery, with unemployment rising and retail sales weakening despite a pickup in growth. Yet Xi’s Covid-zero campaign looks likely to continue to drag on the economy and there has been speculation that his “common prosperity” goal may even lead to property and inheritance taxes.

More broadly, markets had been taking cues from the dip in US bond yields as investors looked beyond the present state of aggressive monetary tightening by the Federal Reserve to the next phase, which may see a slowing or pause in interest-rate hikes.

Purchasing Managers Indexes on Monday showed the euro area’s top two economies worsened in October, with the downturn in Germany intensifying and France failing to grow for the first time in 19 months. The European Central Bank is priming another hefty hike in interest rates this week as the attention increasingly switches to how high it will eventually push.

Key events this week:

• Earnings due this week include: Apple, Microsoft, Exxon Mobil, Ford Motor, Credit Suisse, Airbus, Alphabet, Amazon, Bank of China, Boeing, Caterpillar, Cnooc, Coca-Cola, HSBC, Intel, McDonald’s, Mercedes-Benz, Merck, Samsung Electronics, Shell, UBS, UPS, Vale, Visa, Volkswagen
• PMIs for US, Monday
• US Conference Board consumer confidence, Tuesday
• Bank of Canada rate decision, Wednesday
• ECB rate decision, Thursday
• US GDP, durable goods orders, initial jobless claims, Thursday
• Bank of Japan policy decision, Friday
• US personal income, personal spending, pending home sales, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.4% as of 9:37 a.m. London time
• Futures on the S&P 500 fell 0.6%
• Futures on the Nasdaq 100 fell 0.7%
• Futures on the Dow Jones Industrial Average fell 0.5%
• The MSCI Asia Pacific Index fell 1.1%
• The MSCI Emerging Markets Index fell 2%

Currencies

• The Bloomberg Dollar Spot Index rose 0.6%
• The euro fell 0.4% to $0.9824
• The Japanese yen fell 1.2% to 149.35 per dollar
• The offshore yuan fell 0.9% to 7.2965 per dollar
• The British pound was little changed at $1.1311

Cryptocurrencies

• Bitcoin fell 0.9% to $19,322.09
• Ether rose 0.4% to $1,335.89

Bonds

• The yield on 10-year Treasuries declined two basis points to 4.20%
• Germany’s 10-year yield was little changed at 2.41%
• Britain’s 10-year yield declined 12 basis points to 3.93%

Commodities

• Brent crude fell 2% to $91.66 a barrel
• Spot gold fell 0.7% to $1,646.55 an ounce

–With assistance from Charlotte Yang and Brett Miller.

– Bloomberg