In a disappointing turn of events, Asian shares took a hit today as concerns over slowing growth in China dampened investor sentiment. The market’s attention has now shifted to the upcoming release of Federal Reserve minutes and a crucial U.S. jobs report later this week, which will provide insight into the future interest rate landscape.
Following the Independence Day holiday on Wall Street, market conditions have been rather subdued. EUROSTOXX 50 futures slipped 0.2%, while both S&P 500 futures and Nasdaq futures saw a slight 0.1% decline.
The broadest index of Asia-Pacific shares, excluding Japan, experienced a 0.6% drop. Meanwhile, Japan’s Nikkei fell by 0.3% as profit-taking ensued after the index reached three-decade highs.
In China, a recent survey revealed that the services sector, which had been recovering strongly after lockdowns were lifted, expanded at its slowest pace in five months during June. This added to the mounting evidence that the economic recovery is losing momentum.
As a result, Chinese blue chips experienced a 0.6% decline, while Hong Kong’s Hang Seng index slumped by 1.3%.
Andrew McCaffery, the global chief investment officer at Fidelity International, offered some reassurance, stating, “While it may feel like China has taken two steps back, the next move could be three forward.” He added that Chinese shares are currently trading at a significant discount, making it an attractive entry point for investors, especially considering signs of stabilization in the U.S.-China relationship.
Amid escalating tensions in the tech space, with Beijing imposing export restrictions on two metals and Washington reportedly barring Chinese firms from accessing cloud computing, broader market sentiment remained subdued. However, shares of certain Chinese chip manufacturers rallied as supply concerns pushed metal prices higher.
Traders are now eagerly awaiting the release of the minutes from the Federal Reserve’s recent policy meeting, scheduled for later today. Additionally, all eyes are on the upcoming non-farm payrolls report, set to be released on Friday. These reports will provide crucial insights into whether the Fed needs to implement more than one rate hike to control inflation.
Market expectations currently indicate a high probability of a July rate hike by the Fed, following the previous month’s pause. However, the market has only factored in a 32% chance of the central bank delivering another hike by October.
According to economists surveyed by Reuters, the United States likely added 225,000 jobs last month, indicating a slowdown from the previous gain of 339,000 jobs. It is also anticipated that average earnings growth remained steady at 0.3% compared to the previous month.
Pepperstone’s Head of Research, Chris Weston, highlighted the evolving market sentiment, stating, “It was just a month ago that the market wanted to see a cooling job market as a sign that the Fed’s rate hikes are effective. Now, it seems the thesis has evolved, and the market wants to witness robust job creation, provided wage growth remains subdued.”
In the currency markets, movements have been relatively muted. The yen saw a marginal 0.1% decline, reaching 144.63 per dollar, just below its eight-month low of 145.07, when fears of official intervention were rampant.
Both the Australian dollar and the Chinese yuan slid in response to the China services PMI data. The Aussie dollar was 0.2% lower, trading at $
0.6681 after a volatile session that saw it recover from the losses incurred after the Reserve Bank of Australia’s policy pause on Tuesday. The currency also tested a key resistance level at $0.6696.
Short-term Treasury yields witnessed a modest 2 basis points decline, resting at 4.9152%, while 10-year yields remained relatively unchanged at 3.8546%.
After experiencing gains driven by supply concerns stemming from production cuts by top producers Saudi Arabia and Russia, oil prices relinquished some of their momentum today. Brent crude futures dropped 0.5% to $75.83 a barrel, following a 2.1% increase overnight.
Gold prices, on the other hand, remained stable at $1,925.49 per ounce.
Overall, the mood in Asian markets is rather somber, with concerns over growth weighing heavily on investor sentiment. As traders eagerly await the release of the Federal Reserve minutes and the U.S. jobs report, the future path of interest rates remains uncertain. The coming days will provide crucial insights into the health of the global economy and its impact on financial markets.