Chinese Stocks Drop With Aussie on Moody's Cut

EghtesadOnline: China’s stocks declined after Moody’s Investors Service cut its rating on the country’s debt, saying the outlook for its financial strength will worsen. The Aussie dollar dropped.

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24 May 2017

According to Bloomberg, the Shanghai Composite Index headed for the lowest closing level since October as Moody’s reduced its rating on China amid concerns over rising debt and slowing economic growth. Outside Chinese and Hong Kong markets, stocks climbed in Japan and South Korea. British assets remain in focus in the wake of the suicide bombing in Manchester, as Prime Minister Theresa May warned that further attacks could be imminent. Oil extended a five-day surge.

The bleaker outlook on China comes after evidence this week in support of strengthening global growth as reports showed the German economy is firing on all cylinders and France’s is gathering momentum. Attention is also on the U.S., with the Federal Reserve due to release minutes from its most recent meeting, offering more clues on the pace of interest-rate increases.

“Moody’s rating’s cut on China is weighing on people’s minds with the Shanghai Composite Index continuing its slide, a stark contrast to other equity markets that are trading around fresh highs,” Norihiro Fujito, a Tokyo-based senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co. “Apart from China, investors will be on the lookout for any potential negative developments on Trump-Russia investigations.”

Stock markets in the U.S. have recovered most of the value erased when the S&P 500 slumped on May 17 amid concern surrounding the prospects for President Donald Trump’s reform policies. Still, doubts about the pace of inflation have pushed Treasuries higher ahead of next month’s Fed decision.

Fed Bank of Philadelphia President Patrick Harker said June “is a distinct possibility” for the U.S. central bank’s second interest-rate increase of 2017. He told reporters that another downside surprise on inflation would “worry me a little bit.”

Here are some key upcoming events:

ECB President Mario Draghi speaks in Madrid on Wednesday.

Trump’s tour heads to Group of Seven and NATO meetings in Europe.

Thailand and Canada both release monetary policy decision on Wednesday, followed by South Korea on Thursday.

OPEC will meet in Vienna on Thursday, with major oil producers edging closer to extending an agreement to curb output.

Indian assets will be closely watched after stocks and the rupee fell in Tuesday trading after the country’s army said it launched military raids into a Pakistan-controlled part of Kashmir to destroy camps hosting terrorists.

Here are the main moves in markets:

Stocks

The Shanghai Composite fell 0.4 percent as of 12:28 p.m. in Tokyo. The Hang Seng slipped 0.1 percent.

Futures on the S&P 500 slid 0.1 percent. The underlying gauge rose 0.2 percent Tuesday, reaching as high as 2,400.85, two points from a closing record.

Japan’s Topix index increased 0.5 percent, paring an earlier gain of 0.8 percent. Australia’s S&P/ASX 200 Index was little changed and South Korea’s Kospi index advanced 0.2 percent.

Currencies

The yen fell 0.1 percent to 111.88 per dollar. The Australian dollar fell 0.3 percent, snapping a three-day advance.

The Bloomberg Dollar Spot Index rose less than 0.1 percent after climbing 0.3 percent Tuesday, recovering from a drop close to the lowest level since Nov. 4.

The pound rose 0.1 percent to $1.2974, following a two-day loss.

Bonds

The yield on 10-year Treasury notes held at 2.28 percent Wednesday. Bonds fell during the previous four days.

Australian 10-year yields climbed three basis points to 2.48 percent.

Commodities

Oil rose 0.2 percent to $51.57 a barrel, adding to a five-day advance.

Gold was little changed at $1,251.76 an ounce, after dropping 0.8 percent on Tuesday.