China stocks hit turbulence with Asian shares sinking

Asian Stock Markets

Chinese stocks went into a tail spin on Tuesday as turbulence gripped equity markets in Asia, which sank to nine-month lows as investors feared the Sino-U.S. trade row could derail a rare period of synchronized global growth. 

Speculation was rife the central bank in China was intervening in the currency market to staunch losses and prevent a potentially destabilising sell-off in the yuan.

Chinese financial markets have been jittery ahead of a July 6 deadline, when the U.S. is set to slap tariffs on $34 billion worth of Chinese goods that Beijing has vowed to match with tariffs on U.S. products.

The trade row between the United States and major economies has rattled financial markets in the past several weeks, with no sign U.S. President Donald Trump is about to back down from his ‘America First’ protectionism policies that many fear will harm the global economy.

The Asia Pacific MSCI index ex-Japan .MIAPJ0000PUS tumbled 1.4 percent to its lowest since September 29, while Japan's Nikkei average .N225 was down 0.86 percent to a near three-month low.

Chinese stocks were hit the most, with Hong Kong's Hang Seng index .HSI diving 3.3 percent to its lowest level in ten months, the Shanghai Composite Index .SSEC shedding 1.9 percent to hit a fresh 28 month low.


The Chinese yuan CNY=CFXS, on a downward spiral since mid-June, slipped past 6.7 per dollar in early trading on Tuesday for the first time since Aug. 9, 2017 before paring losses on talk of intervention by the Chinese central bank.

The central bank put the midpoint CNY=PBOC roughly in line with market expectations at 6.6497 yuan per dollar, its weakest level in about 10 months, setting the stage for the day's drop.

The yuan was last traded at 6.6998 per dollar.

Trump told the World Trade Organization on Monday that “we’ll be doing something” if the United States is not treated properly, just hours after the European Union said that U.S. automotive tariffs would hurt its own vehicle industry and prompt retaliation.

Officials in China, the epicentre of the international trade row, have warned the United States that the ti-for-tat tariffs on each others goods will ultimately prove detrimental for American businesses and jobs. L4N1TN1RH

Elsewhere in currency markets, the euro EUR=, which had been pressured by political uncertainty in Germany, pared losses after Chancellor Angela Merkel's conservatives settled a row over migration that threatened to topple her governing coalition after interior minister Horst Seehofer dropped his threat to quit.

The euro last traded at $1.1632 EUR=, after shedding 0.45 percent overnight.

The dollar last stood at 110.82 yen, giving up gains following sharp falls in Chinese shares.

Investors are also keeping an eye on the Reserve Bank of Australia’s (RBA) policy meeting later on Tuesday for any mention of the U.S.-China trade tensions. The central bank is considered certain to maintain rates at 1.5 percent, where they have been since mid-2016.

China is Australia’s major export market and its currency, the Australia dollar, is considered a liquid proxy for China-related risk.

The Aussie dollar was not far off a 1-1/2-year low of $0.7311 AUD=D4 plumbed on Monday, fetching $0.7328.

Oil prices climbed on Tuesday after Libya declared force majeure on some of its supplies, with Brent crude LCOc1 rising 0.83 percent to $77.94 per barrel and West Texas Intermediate (WTI) crude CLc1 was up 0.87 percent to $74.58 a barrel.

Worsening trade row deepens chill felt by Chinese dealmakers seeking to do U.S. takeovers

The rapidly deteriorating trade and investment relationship between Washington and Beijing is sending a further chill through Chinese dealmakers who have already seen the number of Chinese acquisitions of American assets take a big hit.

So far this year, Chinese companies have spent just $1.6 billion on U.S. assets, down almost 80 per cent from the year-earlier period, according to Thomson Reuters data. By contrast the amount China has spent on European assets has risen 39 per cent from last year to $45.1 billion.

“We are now focusing on Europe-bound deals and having U.S. deals on hold. The trade war between China and U.S., if not short-term, will be a mid-term thing and will take some time to conclude,” said Lin Feng, founder and CEO of Chinese investment and advisory firm DealGlobe.

“Opportunities in the U.S. will be more small investments, or joint ventures in China. It will definitely hurt significant minority stake acquisitions, but on the other hand it may help targets in Europe and Israel,” he added.

In 2016, which stands as the record for Chinese cross-border dealmaking, China acquired U.S assets worth $62.6 billion and spent $88.4 billion on European assets.

Since then, China’s imposition of capital controls and in particular a regulatory crackdown on some of its most acquisitive companies, such as HNA Group [HNAIRC.UL], Dalian Wanda Group Co and Anbang Insurance Group [ANBANG.UL], have badly dented Chinese investment flows heading for American shores.

China's industrial profits surge in October, take sting off government debt crackdown

Asian Stock Markets

China’s industrial firms weathered a broad government crackdown on financial risks as profits continued to surge last month in a stabilizing force for the world’s second-biggest economy, which has started to cool slightly in recent months. 

The vast industrial sector has been boosted by a year-long, government-led construction spree, helping lift demand and prices for building materials and taking the edge off higher borrowing costs.

Indeed, mining and heavy industry contributed the biggest gains in October, propelling overall industrial profits by 25.1 percent year-on-year to 745.4 billion yuan ($112.94 billion), compared with a 27.7 percent jump in September, the National Bureau of Statistics (NBS) said on Monday. 

Despite the modest slowdown, October’s growth rate was still the second-highest for a single month this year, and overall profits are on pace to easily top 2016’s record 6.88 trillion yuan.

The data covers large companies with annual revenue exceeding 20 million yuan from their main businesses.

More than half of the increase in profits in October came from mining, iron and steel smelting and processing, chemicals, and oil and natural gas extraction, He Ping of the statistics bureau said in an accompanying statement.

The closure of polluting plants and factories have fuelled fears of supply shortages in the winter, lifting prices of finished goods including steel and copper products.

The high-price trend has persisted, with domestic iron ore futures prices up over 15 percent since the start of November, while coking coal has risen over 23 percent.

Data earlier in the month showed China’s factory prices continued to post strong gains as capacity cuts and anti-pollution measures kept supply in check.

Factory activity, however, has cooled in the past few months. A batch of October data including industrial output, investment and retail sales also undershot expectations, as Beijing’s crackdown on financial risks raised borrowing costs, while the tighter pollution rules have shut many factories and mines.

These factors have started to drag on Asia’s economic powerhouse, which has defied market expectations with growth of 6.9 percent in the first nine months of the year, supported by the construction boom and robust exports.

Curbs on the property market to fend off speculators are also expected to persist, putting a lid on a range of sectors including construction.

Despite the government’s focus on reducing corporate leverage, the asset to liability ratio has remained unchanged at 55.7 percent for the last three months, indicating efforts to improve balance sheets at Chinese firms may have stagnated.

Growth in liabilities has also picked up this year. At the end of October, industrial firms’ liabilities were 6.7 percent higher than a year earlier, compared with a 6.7 percent increase as of the end of September and 6.3 percent growth for 2016. 

China’s stock markets were down in Monday morning trading, as jitters over an effort to improve oversight in the financial industry pulled down companies in the sector, led by a 1.64 percent decline in the Shanghai Stock Exchange’s banking index.

In the first 10 months, industrial firms notched up profits of 6.25 trillion yuan, up 23.3 percent from a year earlier, compared with a 22.8 percent gain in January-September.

There was some moderation in profit growth for upstream industries, as mining profits rose 405.4 percent from a year earlier in January-October, compared to 473.8 percent growth in the first nine months of the year.

Profits earned by China’s state-owned firms rose a sharp 48.7 percent to 1.41 trillion yuan in the first 10 months, compared to 47.6 percent in January-September.

Daily Briefing: A note of caution on the global economy

Surprisingly weak Chinese and German trade numbers for July and June respectively put a question mark over an otherwise fairly rosy global economic picture around mid-year. 

On their own, the reports are unlikely to change the fairly buoyant settings in world markets, but they may inject a note of caution and will be another data point for policymakers to consider. 

The sub-forecast Chinese export and import growth was softened locally as the country’s trade surplus beat expectations and the yuan hit a 10-month high, helped further by news on Monday that the country’s foreign exchange reserves rose twice as much as expected last month. What’s more, the rising bilateral trade surplus with the United States will jar as trade tensions between the two giant economies rise – putting further upward pressure on the yuan. 

If nothing else, the data may liven up fairly sleepy August markets. The Dow Jones and the MSCI World eked out new highs in very thin ranges on Monday as the upbeat Q2 earnings season starts to wind down. 

Sterling was the only big currency mover during the day, slipng to 10-month lows against the euro and its lowest since March on a trade-weighted basis. 

Wrangling in Brexit negotiations over the final ‘divorce bill’ grabbed the headlines, but the pound has been under pressure since the Bank of England signalled last week that no interest rate rise this year was likely and amid a series of data reports this week that domestic consumption is weakening. 

South Africa’s rand rallied more than 1 percent on Monday as markets await a parliamentary vote of no-confidence in President Jacob Zuma. News that Tuesday’s vote would be conducted via secret ballot lifted the currency as it was seen as upping the chances Zuma would be removed after months of political tension and uncertainty over the country’s economic policies. 

Asia bourses were mixed to lower overnight after the Chinese trade numbers. European markets are expected to tick lower too. Brent crude was firm above $52.

Oil slump spooks investors; China stocks get MSCI nod

A renewed slump in oil prices to seven-month lows put Asian investors on edge on Wednesday, overshadowing a decision by U.S. index provider MSCI to add mainland Chinese stocks to one of its popular benchmarks.

The slide in energy costs boosted bond prices and flattened yield curves as investors priced in lower inflation for longer, while safe-haven flows underpinned the U.S. dollar.

The spread between yields on U.S. five-year notes and 30-year bonds shrank to the smallest since 2007 as investors wagered the Federal Reserve might have to delay further rate hikes.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.8 percent, with Australia's commodity-heavy market down 1.5 percent. Japan's Nikkei eased 0.45 percent.

In Europe, futures for the Eurostoxx 50, DAX and FTSE were all off 0.3 percent.

Oil had shed 2 percent on Tuesday as increased supply from several key producers overshadowed high compliance by OPEC and non-OPEC producers on a deal to cut global output.

The drop took U.S. crude down 20 percent from its recent high and thus into official bear territory, a red flag to investors who follow technical trends.

On Wednesday, Brent eased 10 cents to $45.92 a barrel, while U.S. crude futures lost 6 cents to $43.45.

Adding to the uncertainty was news Saudi Arabia's Crown Prince Mohammed bin Salman had replaced his cousin in a sudden shift that made King Salman's 31-year-old son next ruler of the kingdom.

The hit to energy stocks saw the Dow end Tuesday down 0.29 percent, while the S&P 500 eased 0.67 percent and the Nasdaq 0.82 percent. E-Mini futures for the S&P 500 were 0.1 percent lower on Wednesday.

Asia stocks rise for third day on earnings; dollar stalls on Comey sacking

Asian stocks edged higher for a third consecutive day on Wednesday as investors focused on strong corporate earnings and the dollar gave back some of its recent gains.

U.S. President Donald Trump's abrupt dismissal of FBI Director James Comey prompted some unwinding of risky bets in early Asian trading but strategists said investors were cheered by a strong slate of corporate earnings, reflecting the cyclical rebound in the first quarter of 2017 was still in place.

European stocks are set to follow Asia's example, with major indices set for a broadly flat start according to index futures.

With results in for the majority of the companies on the S&P 500, estimated Q1 earnings growth is now at 14.5 percent, highest since Q3 of 2011, Thomson Reuters data shows with roughly 75 pct of companies are beating analysts' expectations.

That has helped Asia as well, with 12-month forward earnings per share for the MSCI index of Asia-Pacific shares outside Japan rising to its highest level in more than three years.

MSCI's Asia ex Japan index rose 0.3 percent after posting modest gains in the previous session. It hit a two-year high last week.

South Korean stocks led losers as investors took profits after liberal leader Moon Jae-in was elected president, while losses in Australia's big banks weighed on the broader market after the government levied taxes on the lenders to help balance the budget. and

Chinese stocks edged higher, shrugging off news that showed April's producer price inflation cooled more than expected, with investors stepping into the market to scoop up bargains after a recent fall.

Asian stocks test new 19-month highs, some markets seen overvalued

Asian stocks inched to new 19-month highs on Thursday with thanks to an ongoing rally on Wall Street and bolstered by gains in Chinese stocks while the dollar came in for a bout of profit-taking after a recent bounce.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.2 percent to its highest since July 2015. It is up by a tenth this year thanks to more optimistic earnings expectations and an unwinding of bearish emerging market bets.

European stock markets are set to open steady to slightly higher according to index futures FFIc1 FDXc1

Wall Street pushed relentlessly into record-high territory on Wednesday, with the S&P 500 notching a seven-session winning streak.

Hong Kong stocks climbed to a fresh five-month high and swelling demand from mainland investors thanks to Beijing's drive to tackle growing asset price bubbles and the market's relatively cheap valuations.

Some investors said markets were looking slightly overvalued from a technical perspective after the bounce in recent weeks. For example, on a relative strength index (RSI), the MSCI Asia-ex Japan index was at its most overbought since 2015.

Though latest regional export data confirmed an upswing in economic activity in Asia was gathering pace, political uncertainty and anti-globalisation rhetoric from the U.S. made investors cautious of adding big positions.