Asian shares fall, China reopens after holidays: end of markets

(Bloomberg) — Asian shares fell on losses in the U.S., as investors focused on the reopening of Chinese markets after a weeklong holiday.

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Stocks fell in Tokyo as Wall Street was dragged down by technology sales, geopolitical unrest and bets on less Federal Reserve rate cutting. A gauge of US-listed Chinese shares was flat overnight. Australian shares rose.

All eyes are on China, with a briefing by the nation’s chief economic planner set for 10am local time being closely watched for more policy action. The government unleashed a series of stimulus measures ahead of the Golden Week holiday, and Chinese shares rose as the support revived investor confidence. Beijing’s use of fiscal firepower has the potential to unlock between 4 trillion yuan ($570 billion) and 10 trillion yuan in stimulus, according to economist Jia Kang.

“There’s certainly a lot of support for the market,” JPMorgan Asset Management global market strategist Kerry Craig told Bloomberg TV. “There’s just one case where the market might be a little disappointed if it doesn’t get what it expects from that tax package.”

An overheating A-share market and enforcement by the Chinese government on recently announced policy stimulus are among the risks investors should watch amid China’s stock market reaction, according to Morgan Stanley.

Several other investors are also not convinced how long the rally will last. Invesco Ltd., JPMorgan Asset Management, HSBC Global Private Banking and Wealth and Nomura Holdings Inc. are among those who are skeptical of the recent rebound and expect Beijing to back up its stimulus pledges with real money.

“So while we anticipate a pop, we expect more political news to come out to support equity prices,” Lorraine Tan, director of Asia Equity Research at Morningstar told Bloomberg TV. “We’re probably going to be a lot more selective in the future for anyone who wants to play up,” she said.

China’s CSI 300 index rose 8.5 percent on Sept. 30, the last trading day before the Golden Week holiday. Meanwhile, Chinese shares in Hong Kong continued to rally. Given the magnitude of gains in related stocks over the holiday period, 10% trading limits for some stocks may come into play, potentially delaying the full sense of the market’s reaction.

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The S&P 500 fell 1% on Monday after snapping a four-week winning streak. Alphabet Inc. fell 2.4% as a judge ruled it must lift restrictions preventing developers from setting up rival marketplaces that compete with its Google Play Store. Brent crude jumped above $80 a barrel amid rising tensions in the Middle East. Following Friday’s strong jobs data, Treasuries continued to slide – with the 10-year yield topping 4%.

“Friday’s strong jobs report not only appeared to kill any chance of a 50 basis point rate cut in November, but also sparked talk the Fed would leave rates unchanged if economic data continues to heat up than expected,” said Chris Larkin of E. *Morgan Stanley trading. “But as last week showed, geopolitics cannot be ignored.”

The crisis in the Middle East continues to unsettle investors as fighting escalated on several fronts on Monday after a year of war. The Israel Defense Forces said they had intercepted most of a barrage of rockets fired at Tel Aviv by Hamas and other Iran-backed groups. Brent crude rose to its highest price since August as speculation grew that Israel could attack Iran’s oil infrastructure. West Texas Intermediate crude rose early Tuesday.

For Morningstar’s Dave Sekera, if there is further geopolitical escalation, it would potentially spur the risk trade-off – with growth stocks underperforming value stocks.

“Typically in a risk-free trade you’ll see a rotation in defensive stocks, but I’d be careful if you’re an investor today,” he said. “Some of today’s defensive sectors are already overvalued. Unlike a typical risk-free trade, I think oil stocks would go up.”

With the exception of energy stocks, every major sector in the S&P 500 fell on Monday. A gauge of megacaps “Magnificent Seven” fell 1.9%. Amazon.com Inc. fell 3.1 percent after Wells Fargo Securities downgraded the stock. Apple Inc. fell 2.3 percent, while a Jefferies analyst said investors had overly optimistic expectations for the latest iPhones. Nvidia Corp. he won. In Asia, Samsung Electronics Co. reported a preliminary operating profit that missed estimates.

The VIX volatility gauge jumped to a two-month high. The 10-year Treasury yield rose six basis points to 4.03%.

Despite the fall in stocks, two of Wall Street’s top strategists grew more optimistic about signs of a robust labor market, economic resilience and interest rate cuts.

Morgan Stanley’s Michael Wilson weighed in on so-called cyclical stocks versus safer defensive peers, citing Friday’s payrolls data and expectations for more Fed tapering. His colleague at Goldman Sachs Group Inc., David Kostin, upgraded his 12-month target for the benchmark to 6,300 points from 6,000. The gauge closed on Monday at 5,695.94.

Key events this week:

• The Fed’s Raphael Bostic, Susan Collins, Philip Jefferson and Adriana Kugler speak Tuesday

• Power minutes, Wednesday

• The Fed’s Lorie Logan, Raphael Bostic, Austan Goolsbee and Mary Daly speak Wednesday

• US Initial Jobless Claims, CPI, Thursday

• The Fed’s John Williams and Thomas Barkin speak Thursday

• JPMorgan, Wells Fargo kick off earnings season for big Wall Street banks on Friday

• US PPI, University of Michigan, Consumer Sentiment, Friday

• The Fed’s Lorie Logan, Austan Goolsbee and Michelle Bowman speak on Friday

Some of the main movements in the markets:

Stocks

• S&P 500 futures were up 0.1% as of 9:51 a.m. Tokyo time

• Japan’s Topix down 0.9%

• Australia’s S&P/ASX 200 rose 0.2%

• Euro Stoxx 50 futures were little changed

Coins

• The Bloomberg Dollar Spot Index fell 0.1%

• The euro was little changed at $1.0983

• The Japanese yen rose 0.2 percent to 147.85 per dollar

• The offshore yuan rose 0.1 percent to 7.0623 per dollar

Cryptocurrencies

• Bitcoin fell 0.8% to $62,508.94

• Ether was down 0.3% at $2,433.95

BONDS

• The 10-year Treasury yield fell two basis points to 4.01%

• Japan’s 10-year yield rose one basis point to 0.930%

• Australia’s 10-year yield rose 12 basis points to 4.19%

commodities

This story was produced with the help of Bloomberg Automation.

–With assistance from Shery Ahn and April Ma.

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