European Stocks Drop as China Debt Jitters Return: Markets Wrap

(Bloomberg) — European shares fell, taking their cue from Asian markets as concern about the debts of Chinese real estate companies weighed on sentiment.

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The Stoxx 600 dropped 0.3%, while declines for equity markets in China, Australia and South Korea pulled a region-wide share gauge lower for the fifth time in six days. A Bloomberg Intelligence index of the China’s property developers sank as much as 6.6%, heading for its worst session in nine months.

US stock futures pointed to modest gains, while Treasuries were down. Oil climbed as hedge funds piled on bets tightening supplies will see a resumption of the rally after a pause last week.

Fresh signs of concern for China’s property developers were highlighted by China Evergrande Group’s decision to cancel a creditor meeting, adding to fears about its debt pile. Meanwhile, a warning to China from the EU’s chief trade negotiator that the bloc would be more forceful in defending its interests also tacked onto the downbeat mood.

Treasuries will be in focus this week, with a number of Fed officials speaking at public events. Investors are also watching for monthly inflation data in the US, and weighing the impact of a possible US government shutdown.

“Sentiment still remains fragile with higher-for-longer messages reverberating through the markets,” Redmond Wong, market strategist for Saxo Capital Markets HK Ltd, wrote in a research note. A potential US government shutdown and the United Auto Workers strike “could further dent sentiment this week,” he said.

The dollar traded in a narrow range against its major peers, while yen was little changed near its weakest level this year. Japan’s currency slipped last week as the Bank of Japan maintained its ultra-easy monetary policy settings.

Inflation Fears

Traders are still concerned about inflation and the path of policy amid the recent oil rally and the Fed’s signal that rates aren’t coming down any time soon, according to Fawad Razaqzada, a market analyst at City Index and in London.

“It is far too early to say the markets have bottomed, as fundamentally nothing has changed,” Razaqzada said.

Two Fed officials said at least one more rate hike is possible and that borrowing costs may need to stay higher for longer for the central bank to ease inflation back to its 2% target. While Boston Fed President Susan Collins said further tightening “is certainly not off the table,” Governor Michelle Bowman signaled that more than one increase will probably be required.

The Treasury 10-year yield may rise to 4.75% before softer risk sentiment and tighter financial conditions push it lower into year-end, according to strategists at Bank of America Corp.

Key events this week:

  • Minneapolis Fed President Neel Kashkari in Q&A, Monday

  • ECB’s Francois Villeroy de Galhau speaks on monetary policy, Monday

  • US new home sales, Conference Board consumer confidence, Tuesday

  • ECB’s Philip Lane speaks on monetary policy, Tuesday

  • China industrial profits, Wednesday

  • US durable goods, Wednesday

  • Eurozone economic confidence, consumer confidence, Thursday

  • US initial jobless claims, GDP, Thursday

  • Fed Chair Jerome Powell town hall meeting with educators while Richmond Fed President Tom Barkin, Chicago Fed President Austan Goolsbee make speeches, Thursday

  • Eurozone CPI, Friday

  • Japan unemployment, industrial production, retail sales, Tokyo CPI, Friday

  • US consumer spending, wholesale inventories, University of Michigan consumer sentiment, Friday

  • ECB President Christine Lagarde speaks, Friday

  • New York Fed President John Williams speaks, Friday

Some of the main moves in markets:


  • The Stoxx Europe 600 fell 0.3% as of 8:01 a.m. London time

  • S&P 500 futures rose 0.3%

  • Nasdaq 100 futures rose 0.3%

  • Futures on the Dow Jones Industrial Average rose 0.2%

  • The MSCI Asia Pacific Index fell 0.4%

  • The MSCI Emerging Markets Index fell 0.6%


  • The Bloomberg Dollar Spot Index was little changed

  • The euro was little changed at $1.0647

  • The Japanese yen was little changed at 148.44 per dollar

  • The offshore yuan fell 0.2% to 7.3116 per dollar

  • The British pound was little changed at $1.2245


  • Bitcoin fell 1.5% to $26,115.49

  • Ether fell 0.8% to $1,577.75


  • The yield on 10-year Treasuries advanced three basis points to 4.46%

  • Germany’s 10-year yield advanced two basis points to 2.76%

  • Britain’s 10-year yield advanced two basis points to 4.26%


This story was produced with the assistance of Bloomberg Automation.

–With assistance from Brett Miller.

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