Risk rally comes to shuddering halt

March 6 – Maybe some of the recent exuberance was of the irrational variety.

The selloff across risk assets on Tuesday will almost certainly put Asian markets on the defensive on Wednesday: Asian stocks had their worst day since January, the Nasdaq lost 1.7%, and bitcoin slumped 9% after briefly touching a new high.

The regional calendar includes South Korean inflation and Australia’s fourth-quarter GDP, while China’s annual National People’s Congress continues into its second day.

But Wednesday’s tone will likely be set by Tuesday’s global market moves.

The ‘risk off’ nature of Tuesday’s trading was underscored by the fall in Treasury yields to one-month lows and gold rising for a fifth day to an all-time high of USD 2,141 per ounce.

There were several drivers behind the selloff, including weak US service sector figures, caution ahead of Fed Chair Jerome Powell’s Congressional testimony on Wednesday, and a suspected arson attack at Tesla’s Gigafactory in Berlin.

Perhaps most alarming, however, was the report by research firm Counterpoint that Apple’s iPhone sales in China fell 24% year-on-year in the first six weeks of this year, during which time domestic rival Huawei saw unit sales rise by 64%.

This could fan fears of a slowdown in demand for the US company, whose revenue forecast for the current quarter was USD 6 billion below Wall Street expectations. China, Hong Kong and Taiwan account for around a fifth of Apple’s total sales.

It is also a reminder of the trade tensions between the United States and China, which could intensify further if Donald Trump gets the keys to White House again and follows through on his pledge to slap huge tariffs on Chinese goods.

Investors will have noted official reports in China that Beijing is targeting annual GDP growth this year of around 5% and aims to increase defence spending by 7.2%.

Staying in China, struggling property developer China Vanke said it has funding in place to repay USD 630 million in dollar notes due next week, amid more selling pressure on its bonds as concern mounts over its liquidity.

China’s No.2 property developer by sales said the repayment process was “orderly”. But again, this is just a reminder of the deep hole China’s property sector is in.

Yet Chinese stocks rose for a fifth day – the CSI 300 index of blue chips is now up 13 out of the last 15 days – and the 10-year Chinese government bond yields slid to a new all-time low.

According to Reuters polls, data on Wednesday should show Australia’s GDP grew at a 1.4% annual pace in the final quarter of last year, compared with 2.1% in the prior quarter, while annual inflation in South Korea inched up to 2.9% in February from 2.8%.

Here are key developments that could provide more direction to markets on Wednesday:

– China National People’s Congress

– Australia GDP (Q4)

– South Korea inflation (February)

(By Jamie McGeever)

Oil falls 1% on concerns over China’s economic growth plan

NEW YORK, March 5 – Oil prices fell nearly 1% on Tuesday, pressured by skepticism around China achieving its economic growth target and investors’ declining risk appetite despite support from a weaker US dollar.

Brent crude futures settled 76 cents, or 0.9%, lower at USD 82.04 a barrel, their fourth straight decline. US West Texas Intermediate crude futures fell 59 cents, or 0.8%, to USD 78.15 a barrel.

Both benchmarks had dropped by more than a dollar during the session.

Weighing on prices, China, the world’s biggest oil importer, set an economic growth target for 2024 of around 5%. While the target is similar to last year’s goal and in line with analysts’ expectations, the lack of big-ticket stimulus plans to prop up the country’s struggling economy disappointed investors.

“The growth target is OK, but the missing part is how they want to achieve that – what sort of stimulus is unclear for now,” UBS analyst Giovanni Staunovo said.

Risk-off sentiment in the broader financial markets also put pressure on prices, Staunovo added. Gold prices hit a record high on Tuesday on rising bets for a US interest rate cut in June, while Wall Street fell on weakness in megacap stocks.

Providing some support to oil prices, the US dollar slipped on easing growth in the services sector. A cheaper greenback typically supports oil prices by lifting demand from investors holding other currencies.

“Beyond that, the market is really just looking for the next headline here, with the upcoming storage reports in focus,” Mizuho analyst Robert Yawger said.

The first of this week’s two US inventory reports, from the American Petroleum Institute industry group, showed US crude stocks rose by 423,00 barrels in the week ended March 1, market sources said, much smaller than the increase of 2.1 million barrels expected by analysts in a Reuters poll.

Official data from the US Energy Information Administration is due on Wednesday at 10:30 a.m. ET (1530 GMT). If the EIA reports a crude storage build, it will be the sixth straight week of rising oil stocks in the country.

(Reporting by Shariq Khan, Alex Lawler, Natalie Grover, Georgina McCartney, and Sudarshan Varadhan; Editing by Jason Neely, Will Dunham, Mark Potter, Aurora Ellis, Marguerita Choy, and David Gregorio)

10-year yields fall to one-month low

March 5 – Benchmark 10-year US Treasury yields fell to a one-month low on Tuesday after data showed US services industry growth slowed slightly and as investors prepared for US jobs data for February due on Friday for further clues on Federal Reserve policy.

Traders will also be focused on testimony by Fed Chair Jerome Powell to Congress on Wednesday and Thursday for any fresh clues on monetary policy.

US services industry growth slowed a bit in February amid a decline in employment. A gauge of prices paid for inputs by businesses also fell to 58.6 from an 11-month high of 64.0 in January.

“The services number is the area the Fed is more focused on,” said Ellis Phifer, managing director of fixed income research at Raymond James in Memphis, Tennessee, adding that the inflation and employment components “are some of the biggest factors.”

A drop in yields before the data also reflects investors positioning ahead of Friday’s jobs report.

“The market is repricing itself ahead of that number,” Phifer said.

Employers added an estimated 200,000 jobs last month, according to economists polled by Reuters.

It will follow much stronger-than-expected gains of 353,000 jobs in January that analysts have said was likely due in part to seasonal factors.

Other economic releases due this week will include the Job Openings and Labor Turnover Survey (JOLTS) on Wednesday.

Traders are evaluating when the US central bank is likely to begin cutting interest rates as growth remains relatively strong and inflation gets closer to the Fed’s 2% annual target.

Fed funds futures traders see a 71% probability that the Fed will begin cutting rates in June, up from 64% on Monday, according to the CME Group’s FedWatch Tool.

Benchmark 10-year yields were last down 8 basis points on the day at 4.137% and got as low as 4.112%, the lowest since Feb. 8.

Two-year yields dropped 6 basis points to 4.550%. The inversion in the yield curve between two-year and 10-year notes deepened by 2 basis points to minus 42 basis points.

The Fed accepted USD 444.47 billion in its reverse repurchase agreement operation on Tuesday. Banks and investors have been cutting the amount they loan to the Fed’s reverse repo facility as they find other securities with more attractive rates.

(Reporting by Karen Brettell; editing by Jonathan Oatis and Will Dunham)

Mounting US rate cut bets fuel gold to record highs

March 5 – Gold scaled a record high on Tuesday, moving further above USD 2,100 per ounce in a rally sparked by growing bets for a US interest rate cut in June and on safe-haven demand due to the conflict in the Middle East.

Spot gold gained 0.8% to USD 2,132 per ounce as of 02:13 p.m. ET (1913 GMT), having hit a record USD 2,141.59 earlier.

US gold futures settled about 0.7% higher at USD 2,141.9.

Bullion last hit a record high in December at USD 2,135.40.

“The big reason here is that we’re seeing the market increasingly believing that a Fed rate cut is nearer rather than further away,” said Bart Melek, head of commodity strategies at TD Securities.

“Markets have to be a little bit more convinced for gold to move higher, but ultimately in the second quarter, we do think it can go to over USD 2,300 plus.”

Gold, often used as a safe store of value during times of political and financial uncertainty, has climbed over USD 300 dollars since the start of the Israel-Hamas war.

“Geopolitical risks emanating from the Red Sea and a year with a dense election calendar globally will likely see continued strength in retail demand for gold,” Nitesh Shah, commodity strategist at WisdomTree, said.

“We wouldn’t be surprised if gold gives back some of these gains as the US Federal Reserve talks down imminent cuts, but once rate cuts look certain, we expect gold to trade significantly higher.”

Fed Chair Jerome Powell’s congressional testimony on Wednesday and Thursday will be closely watched for more clarity on the US interest rate path. The next major US economic release will be February’s employment report due on Friday.

Traders currently see a 70% chance that the Fed will start cutting rates by June, according to the CME FedWatch tool.

Gold is pressured when high interest rates to tame inflation raise returns on competing assets such as bonds and boost the dollar, making the precious metal costlier for overseas buyers.

Spot silver eased 0.8% to USD 23.70 per ounce, having hit its highest since Dec. 28 earlier in the session.

Other precious metals fell, with platinum slipping 1.8% to USD 881.23 per ounce, and palladium shedding 1.1% to USD 949.68.

(Reporting by Anjana Anil and Ashitha Shivaprasad in Bengaluru; Additional reporting by Swati Verma; Editing by Veronica Brown, Shailesh Kuber, Tasim Zahid, and Shounak Dasgupta)

Investors in China stick to bargains as fiscal bazooka proves elusive

SINGAPORE, March 5 – Foreign investors returning to China’s recuperating stock markets say spending plans announced on Tuesday are not enough to turn battered sentiment around, and the main reason to keep buying shares for now is because they are cheap.

Money managers hunting for bargains have been trickling back into mainland stocks since February, after China replaced its stock market regulator and tightened rules around speculation, leading to a sharp but fragile recovery in the market.

Few had held out hopes the National People’s Congress (NPC), China’s rubber-stamp parliament, would unleash a torrent of cash big enough to buoy markets and the mood right away.

But those expecting solid spending plans to reach a growth target of 5% were disappointed as authorities stuck to a familiar script about managing risks in the property sector and municipal debt and spurring “worry-free consumption”.

China plans to run a budget deficit of 3% of economic output, down from a revised 3.8% last year, belying the fiscal shot-in-the-arm some had hoped for to fuel a recovery.

“Investors need to see policies that could improve governance and final demand, but neither seem to be on offer so far at the NPC,” Ken Peng, head of investment strategy in Asia at Citi Global Wealth, said in an email to Reuters.

Mainland equities were steady on Tuesday, helped by signs of state-backed buying, and Hong Kong’s Hang Seng fell 2.6%. The yuan held its ground.

Mainland China stockmarkets lost about USD 2 trillion in market value in the year to Jan. 31, with foreign investors’ net selling of 112 billion yuan (USD 15.6 billion) over the period drawing down exposures of global money managers to the lowest levels for years.

They have since bought stocks worth 48.3 billion yuan and China’s blue-chip CSI300 Index has bounced nearly 15% off the five-year lows it hit last month.

But where global investors were once happy to park slabs of their portfolios in China for the long term, many are running smaller and nimbler “tactical” books offering exposure to short-term bounces while holding back on larger strategic stakes.

“There is a degree of anticipation as to when all of these collective measures will start making a lot of sense and moving markets and moving asset prices,” said Niraj Athavle, J.P. Morgan’s head of sales and marketing in Singapore.

“I wish I could tell you what exactly would be the single point that triggers it … but I don’t think any such trigger exists.”

FINDING A FOOTING

Investors, both foreign and domestic, are being selective in buying stocks but only in sectors such as electric vehicles and technology, says Winnie Chiu, senior director and investment adviser at Indosuez Wealth Management.

These sectors lie at the heart of China’s quest for self-sufficiency.

Mainland markets are also cheap. The 12-month forward price-to-earnings ratio, a widely used valuation measure, is just around 10 for the CSI 300, half the levels for S&P 500 and Japan’s Nikkei.

Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management, says the plan for a year-long trade-in program for consumer goods is one short-term positive driver for the stock market.

That and the cheapness of the stock market and light foreign investor positioning is a short-term opportunity but “in our mind, long-term doubts and uncertainties linger,” said Mitra, who prefers to remain structurally underweight China.

Still, enough has been done to at least stop the carnage, analysts say and Steve Lawrence, chief investment officer at Balfour Capital, who manages USD 300 mln across different funds, sees money flowing back into Chinese stocks.

“The reality is when there’s fear, or there’s a sense of fear, the smart money, the real money, always buys. If you take a step back, China is still growing, it will continue to grow,” Lawrence said.

“It’s just the beginning of a massive biblical move. When you have such a divergence – the Nasdaq at all-time highs and where the Hang Seng is – there will be a teeter-totter.”

(USD 1=7.1982 yuan)

(Reporting by Ankur Banerjee and Tom Westbrook; Additional reporting by Samuel Shen and Summer Zhen; Writing by Vidya Ranganathan; Editing by Clarence Fernandez)

Japan’s Nikkei ends flat on dip-buying as index slips from peak

TOKYO, March 5 – Japan’s Nikkei share average erased most of its early losses to end flat on Tuesday as investors bought stocks on dips after the benchmark index slipped from a record high.

The Nikkei inched down 0.03% to 40,097.63, narrowing most of its 0.7% loss earlier in the session.

“Investors bought back stocks on dips. Overall, the market was firm. The Nikkei fell today just because those stocks which lifted the Nikkei declined,” said Naoki Fujiwara, senior fund manager at Shinkin Asset Management.

After five consecutive weeks of gains, the Nikkei breached the 40,000 level for the first time on Monday and has risen nearly 20% so far this year.

Chip-testing equipment maker Advantest slipped 2.64%, weighing the most on the Nikkei, while chip-making equipment maker Tokyo Electron reversed course to end 0.41% higher to become the biggest support for the index.

“Investors sold the chip-related shares, which were heavily bought in the rally after Wall Street fell overnight,” said Jun Morita, general manager of the research department at Chibagin Asset Management.

The three main indexes in the United States ended lower overnight as investors took a pause ahead of economic data and Federal Reserve Chair Jerome Powell’s congressional testimony.

The broader Topix cut its early losses to end 0.5% higher at 2,719.93.

Obayashi Corp surged 18% to a daily limit high after the general contractor raised its dividend forecast. Peers Kajima Corp and Taisei Corp rose 6.49% and 8.81%, respectively.

The construction sector rose 2.96% to become the top performer among the Tokyo Stock Exchange’s 33 industry sub-indexes.

Fast Retailing edged up 0.25% after the Uniqlo-brand clothing store operator said its existing store sales in February rose 7.2% from a year earlier.

Of the 225 Nikkei components, 124 stocks rose and 99 fell, while two were flat.

(Reporting by Junko Fujita; Editing by Rashmi Aich and Sohini Goswami)

Dollar a spectator to China news, yen ponders rate risks

SYDNEY, March 5 – The dollar held steady on the yuan on Tuesday as markets digested a welter of policy statements out of China, while a rebound in Tokyo inflation seemed to take Japan a step closer to the end of negative interest rates.

There was more action in bitcoin BTC=, which gained 1.2% to USD 68,341 after surging more than 7% on Monday. The blockchain asset has benefited from flows into cryptocurrency exchange-traded funds, most notably in the United States.

Early news out of China’s National People’s Congress (NPC) contained few surprised with Beijing sticking with an economic growth target of 5% and a budget deficit of 3%.

Analysts say meeting the target will be a challenge as a protracted property crisis, low consumption, slow global growth and geopolitical tensions drag on activity.

The yuan was little changed at 7.1987, as markets hoped more concrete stimulus measures would emerge.

The Japanese yen held steady after data showed Tokyo core inflation sped up to 2.5% in February, from 1.8% the previous month. The measure excluding food and energy did slow to 3.1%, but stayed above the Bank of Japan’s 2% target.

“Inflation jumped to well above 2% and will remain around that level for a few months,” by Marcel Thieliant, head of Asia-Pacific at Capital Economics. “Accordingly, we’re sticking to our forecast that the Bank of Japan will hike interest rates into positive territory next month.”

Many analysts expect rates to rise to zero in April after Japan’s wage round ends.

The dollar was a fraction lower at 150.44 yen , having again shied away from resistance around 150.85, which has capped the currency for more than three months now.

A break higher would open the way to November’s top at 151.92, but would also run the risk of provoking Japanese intervention to buy the yen.

Markets currently imply around a 64% chance the Federal Reserve will start cutting U.S. rates in June and ease by around 75 basis points this year.

Fed Chair Jerome Powell has a chance to update investors on his own outlook when he appears before lawmakers on Wednesday and Thursday.

The euro idled at USD 1.0853, having tested resistance around USD 1.0866. The dollar index, which measures the currency against six major peers, was unchanged at 103.840.

The European Central Bank (ECB) holds a meeting on Thursday and markets are convinced it will keep rates at 4.0%. Futures imply an 88% probability that cuts will start in June and have priced in 89 basis points of easing for 2024.

“The persistence of sticky services CPI and signs of services picking up more broadly in survey data suggest that ECB will continue to highlight patience and further maintaining of restrictive policy,” argued analysts at Westpac.

“After holding tests below USD 1.0800 last week, EUR/USD looks set to test the USD 1.0900-50 area, the middle its range since late December.”

Sterling steadied at USD 1.2692 ahead of the British budget on Wednesday. Finance Minister Jeremy Hunt has been trying to dampen speculation about big pre-election tax cuts.

(Reporting by Wayne Cole. Editing by Sam Holmes.)

China says 2024 defense spending to rise 7.2%

BEIJING, March 5 – China’s 2024 defense spending will rise 7.2% from 2023, according to an official work report reviewed by Reuters on Tuesday.

The National People’s Congress (NPC), China’s rubber-stamp parliament, is due to hear Premier Li Qiang’s first work report at its annual meeting in Beijing on Tuesday.

The target rise for last year’s defense budget was also 7.2%.

China sets 2024 GDP growth target at around 5%, same as last year

BEIJING, March 5 – China has set an economic growth target for 2024 of around 5%, similar to last year’s goal and in line with analysts’ expectations, according to an official work report released on Tuesday.

To meet the goal, China plans to run a budget deficit of 3% of economic output, down from a revised 3.8% last year, the report said. But crucially, it plans to issue 1 trillion yuan (USD 139 billion) in special treasury bonds, which are typically not included in the budget.

The National People’s Congress (NPC), China’s rubber-stamp parliament, is due to hear Premier Li Qiang’s maiden work report at its annual meeting in Beijing this week.

The report sets out the government’s key economic and social development goals each year.

The special bond issuance quota for local governments was set at 3.9 trillion yuan, versus 3.8 trillion yuan in 2023, the report said.

China also set the inflation target at 3% and aims to create over 12 million urban jobs this year, keeping the jobless rate at around 5.5%.

China’s economy expanded 5.2% in 2023, but it remains heavily reliant on credit-driven, state-led investment, raising concerns over whether it can sustain that pace in the longer-term.

This year’s target will be harder to reach than last year’s because the favorable base effect from a COVID-hit 2022 has faded, analysts say.

A property crisis, deepening deflation, a stock market rout, and mounting local government debt woes are putting great pressure on China’s leaders to take momentous policy decisions that will put the economy on a solid footing for the long-term.

Analysts expect China to lower its annual growth ambitions in the future as it needs to make tough calls on how to fix these deep structural imbalances.

Reform advocates, worried about record low consumer confidence and plunging investor and business sentiment, want China to return to a path of pro-market policies and boost household demand.

The NPC is not the traditional venue for sharp policy shifts, which are usually reserved for events known as plenums, held by the Communist Party between its once-every-five-year congresses.

One such plenum was initially expected in the final months of 2023. While it could still take place later this year, the fact that it has not yet been scheduled has fueled investor concerns over policy inaction.

The International Monetary Fund projects China’s economic growth at 4.6% this year, declining further in the medium term to about 3.5% in 2028.

(Reporting by Beijing newsroom; Writing by Marius Zaharia; Editing by Leslie Adler, Neil Fullick and Lincoln Feast.)

Fed dashes March cut hopes, market fallout begins

Jan 31 – While Asia’s beaten-down stock markets could use a clean slate in February they must first contend with Wall Street’s negative reaction to the Federal Reserve’s unsurprising decision to hold US rates steady on Wednesday.

Asia gets its chance to trade on the Fed Thursday and then pivot to Friday’s US payrolls report, which it will digest on Monday.

US stocks extended losses and Treasury yields fell after the Fed’s statement, which dropped language suggesting further hikes could be in the offing but, disappointingly, all but ruled out that a rate cut would come at the next meeting in March.

Policymakers were not confident enough that inflation was moving sustainably toward its 2% target to commit to an imminent time frame and Chair Jerome Powell later reinforced with reporters that a March cut was not the base case, which pushed stocks even lower.

“He’s preserving some of that flexibility and he’s still providing the direction that the Fed is going to be moving to easing stance,” said Keith Lerner, chief market strategist at Truist Wealth in Atlanta. “So markets were bouncing around a lot, but in general it’s in line with expectations and not a major shift. But him being more direct and forcefully pushing back against a March cut is a net negative.”

The S&P 500 was already retreating from record-high territory after Microsoft MSFT.O and Alphabet GOOGL.O flagged, in their earnings reports, rising costs to develop Artificial Intelligence. The market was also digesting a weaker-than-expected ADP National Employment report, which muddies the picture for Friday’s US payrolls report after surprisingly decent labor market data on Tuesday. The benchmark index closed down 1.6% on Wednesday but rose 1.6% for the month.

Japan continued to buck the selloff elsewhere in Asia. MSCI’s broadest index of Asia-Pacific shares outside Japan slid 0.4% and was heading for a monthly loss of roughly 5%, snapping a two-month winning streak.

With Wednesday’s close China’s stock markets have fallen six straight months despite recent efforts by Beijing to shore up the economy and confidence.

Chinese shares lost 0.9% after a survey showed manufacturing activity shrinking in January for a fourth month.

State-backed investors, the so-called “national team” appear to be plunging into blue-chip funds. More than USD 17 billion flowed to four Chinese-domiciled exchange traded funds tracking the CSI 300 index in the month to Jan. 26, S&P Global Market Intelligence found.

Japan’s Nikkei ended the month with a more than 8% gain, its best January performance since 1998 amid increasing confidence that its long-moribund economy has turned the corner.

Minutes from the last Bank of Japan meeting, released Wednesday, bore out the market view that the central bank will soon take a hawkish turn from keeping rates negative and lifted JGB yields and underpinned the yen.

The dollar slipped against the yuan and fell against the yen in US trade.

Here are key developments that could provide more direction to markets on Thursday:

— Japan PMI for December

— US weekly jobless claims

— US PMIs for January

(Reporting by Alden Bentley)

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