Finance

Stocks fall in risky mood ahead of major events: markets close

Published

1 month ago

July 30, 2024

Stocks fall in risky mood ahead of major events: markets close

(Bloomberg) — Asian shares fell amid speculation that investors are trimming some of their holdings ahead of a flurry of events in the coming days, including major central bank decisions, key economic data and earnings from U.S. mega-cap companies.

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The MSCI Asia Pacific Index extended its July decline to 0.5%, marking its first monthly decline since April. Hong Kong stocks led losses on Tuesday, falling more than 1% as optimism over the Chinese government’s stimulus plans waned. Australian and Japanese shares also fell, and US stock futures fell slowly.

The yen remained near its strongest level in 12 weeks ahead of a Bank of Japan policy decision on Wednesday. The dollar edged higher against most of its major peers as traders prepared for a Federal Reserve review the same day. Government bonds were little changed and headed for a third month of gains.

“Market participants are taking risk off the table ahead of the risks of big events this week, from key central bank meetings to big tech earnings,” said Charu Chanana, strategist at Saxo Capital Markets in Singapore.

BOJ Governor Kazuo Ueda will put investors on high alert on Wednesday when he lays out a detailed plan for quantitative tightening after years of massive easing. He can also double down by adding an interest rate hike. The central bank is looking for evidence that sustained wage increases will stimulate a recovery in consumption and fuel demand-driven price growth, allowing authorities to further normalize monetary policy.

Chinese government bonds advanced and 10-year yields fell to a new record low. The rally in stock markets is testing the patience of the central bank, which is balancing between boosting growth with easing measures and curbing potential financial shocks from an overheated bond market.

Investors are also looking to the outcome of a meeting of China’s Politburo – possibly sometime this week – for some guidance on possible stimulus measures. Still, sentiment remains negative after efforts to boost growth this year failed to reverse the real estate decline and revive subdued consumer demand.

“Investing in China is highly dependent on policy, but from the Third Plenum to the Politburo now, there has been no exciting policy so far,” said Steven Leung, executive director of UOB Kay Hian Hong Kong. “Investors are not interested in Chinese stocks and tend to further reduce their positions.”

The S&P 500 closed fractionally higher on Monday, with the gauge of the “Magnificent Seven” mega-caps rising 1%. The Russell 2000 of smaller companies fell 1.1%. Tesla Inc. jumped on a bullish call from Morgan Stanley. Investors of McDonald’s Corp. shrugged off a sales decline as executives promised to launch new promotions.

It is widely expected that US policymakers, who have kept interest rates at their highest level in more than two decades for a year, will leave them at that level again on Wednesday. But investors see officials signaling a move in September as risks mount that a solid but moderating labor market is at risk.

July’s wild stock run has underscored how betting on seven major tech companies is no longer a simple, slam-dunk trade. For most of the month, investors turned to other corners of the market as they believed Fed cuts would further boost corporate America. Still, the S&P 500 ultimately suffered two consecutive weeks of losses, dragged down by its most influential group: technology.

In company news: BHP Group Ltd. has collaborated with Lundin Mining Corp. to Filo Corp. to buy, gaining access to South American copper projects.

Commodities have wiped out all their gains this year as the challenging outlook in China, combined with a US natural gas sell-off and food losses, have weighed on commodities. Gold fell for a second day while the dollar stabilized.

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