European Stocks Drop as China, Fed Talk Sour Mood: Markets Wrap

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(Bloomberg) — European equities fell, tracking markets lower in Asia, as concern about local government debt in China and hawkish language from a US central banker put traders in a risk-off mood.

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The Stoxx 600 index dropped 0.7%, snapping two days of gains and trimming its fourth weekly advance in five. US equity futures fluctuated and Treasury yields edged lower. The British pound led gains among G-10 currencies against the dollar after the strongest quarterly growth in more than a year.

Markets were fragile after San Francisco Reserve Bank President Mary Daly said the Fed still has “more work to do” to combat rising prices, damping the impact of broadly positive inflation data on Thursday. In China, the government moved to manage local government debt, a key threat to the nation’s financial stability, while property developer Country Garden Holdings Co. predicted a multibillion-dollar loss for the first half of this year.

“The issues we’ve seen with the Chinese property market is a little bit of a global reminder of the uncertainty around what can happen to stretched balance sheets,” said Richard Flax, chief investment officer at European digital wealth manager Moneyfarm. “There may be other accidents waiting to happen as a result of sharply higher rates that we just haven’t seen come through yet.”

This week has seen a marked move into haven assets and out of stocks, according to Bank of America Corp. strategists. Cash funds attracted $20.5 billion of inflows, while investors poured $6.9 billion into bonds in the week through August 9, according to Bank of America, citing data from EPFR Global. In the meantime, US stocks had their first outflow in three weeks at $1.6 billion.

BofA Says Investors Flock to Cash; Treasuries Track Record Flows

In currencies, the Bloomberg Dollar Spot Index was flat after rising Thursday. The greenback is set for a fourth week of gains, the longest such streak since February. Meanwhile, the Australian dollar’s continued depreciation is starting to increase fears of inflation.

“Our view that USD upside is likely limited still holds,” said Christopher Wong, FX strategist at Oversea Chinese Banking Corp. The point of inflection “could come when the market narrative shifts into trading more rate cuts. And it could be several months out, dependent on how data pans out,” Wong added.

Australian, South Korea and Chinese equity indexes fell, with the Hang Seng technology index declining as much as 2.7%. All but one of the index’s 30 members dropped, with Alibaba Group Holding Ltd. the only advancer after it beat revenue estimates in its latest quarterly results. Country Garden’s declines have put an index of Chinese property developers on track for its worst week since October.

Biden Calls China’s Economy a ‘Ticking Time Bomb’ in Fresh Barb

In commodities, oil was on track to end the week little changed ahead of a report from the International Energy Agency.

Key events this week:

  • UK industrial production, GDP, Friday

  • US University of Michigan consumer sentiment, PPI, Friday

Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 fell 0.7% as of 10:04 a.m. London time

  • S&P 500 futures were little changed

  • Nasdaq 100 futures fell 0.2%

  • Futures on the Dow Jones Industrial Average were little changed

  • The MSCI Asia Pacific Index fell 0.7%

  • The MSCI Emerging Markets Index fell 0.9%

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro rose 0.2% to $1.0998

  • The Japanese yen was little changed at 144.62 per dollar

  • The offshore yuan was little changed at 7.2487 per dollar

  • The British pound rose 0.2% to $1.2705

Cryptocurrencies

  • Bitcoin fell 0.2% to $29,374.7

  • Ether fell 0.2% to $1,845.67

Bonds

  • The yield on 10-year Treasuries declined two basis points to 4.08%

  • Germany’s 10-year yield advanced three basis points to 2.56%

  • Britain’s 10-year yield advanced nine basis points to 4.45%

Commodities

  • Brent crude was little changed

  • Spot gold rose 0.4% to $1,919.25 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Brett Miller and Wenjin Lv.

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