Asia to Track Worst US Selloff Since August Crash: Markets Wrap

Article content

(Bloomberg) — Stocks in Asia were poised for losses after US benchmarks posted their worst day since the Aug. 5 market meltdown, as concerns about growth and monetary policy combined to torch risky assets.

Equity futures were down across Australia, Hong Kong and Japan, pointing to losses of 3% in the Tokyo bourse. US contracts edged lower in early trading after the S&P 500 fell more than 2%, with Nvidia Corp. driving a plunge in tech stocks. Meanwhile, the yen jumped, a closely watched manufacturing gauge again missed forecasts, and oil sank on concern about tepid global demand. 

Article content

Wall Street’s “fear gauge” – the VIX – soared. Treasury yields tumbled, with traders keeping their bets on an unusually large half-point Federal Reserve rate cut this year. A dollar gauge rose for a fifth session, its longest winning streak since April. 

The S&P 500 and the Nasdaq 100 saw their worst starts to a September since 2015 and 2002, respectively. With inflation expectations anchored, attention has shifted to the health of the economy as signs of weakness could speed up policy easing. While rate cuts tend to bode well for equities, that’s not usually the case when the Fed is rushing to prevent a recession. 

Traders are anticipating the Fed will reduce rates by more than two full percentage points over the next 12 months — the steepest drop outside of a downturn since the 1980s. The trepidation after the latest rise in unemployment will leave traders “on edge” until Friday’s payrolls data, said Ian Lyngen and Vail Hartman at BMO Capital Markets.

“This week’s jobs report, while not the sole determinant, will likely be a key factor in the Fed’s decision between a 25 or 50 basis-point cut,” said Jason Pride and Michael Reynolds at Glenmede. “Even modest signals in this week’s jobs report could be a key decision point as to whether the Fed takes a more cautious or aggressive approach.”

Article content

Article content

The S&P 500 dropped to around 5,530 while the Nasdaq 100 lost over 3% as Nvidia tumbled 9.5% — erasing $279 billion in a record one-day wipeout for a US stock. The US Justice Department sent subpoenas to Nvidia and other companies as it seeks evidence that the chipmaker violated antitrust laws.

US 10-year yields fell seven basis points to 3.83%. A record number of blue-chip firms tapped the corporate-bond market, taking advantage of cheaper borrowing. The yen climbed as Bank of Japan’s Kazuo Ueda reiterated the central bank will continue to raise rates if the economy and prices perform as expected.

Marking the start of a busy week for economic data, a report showed US manufacturing activity shrank in August for a fifth month. 

The Morgan Stanley strategist who foresaw last month’s market correction says firms that have lagged the rally in US stocks could get a boost if Friday’s jobs data provide evidence of a resilient economy. A stronger-than-expected payrolls number would likely give investors “greater confidence that growth risks have subsided,” Michael Wilson wrote.

Article content

The August jobs report is expected to show payrolls in the world’s largest economy increased by about 165,000, based on the median estimate in a Bloomberg survey of economists. 

While above the modest 114,000 gain in July, average payrolls growth over the most recent three months would ease to a little more than 150,000 — the smallest since the start of 2021. The jobless rate probably edged down in August, to 4.2% from 4.3%.

While the Fed is finally coming around to cutting rates, it does not feel like stringing out a bunch of 25 basis-point rate cuts will do the job, said Neil Dutta at Renaissance Macro Research. Under that scenario, it will take a long time to return the funds rate to neutral and in the process, you’ll keep policy restrictive, keeping open downside risks to growth.

“That muddling through scenario will probably risk further increases in the unemployment rate,” he said. “So, if they aren’t going 50 in September, they are going to need to go 50 at some point later this year.”

Corporate Highlights:

• Boeing Co. slumped as Wells Fargo & Co. lowered the planemaker to a sell-equivalent recommendation, saying it’s hard to see any upside in the shares.
• Vice President Kamala Harris joined President Joe Biden in declaring that United States Steel Corp. should remain domestically owned and operated, the latest headwind to the proposed sale of the company to Japan-based Nippon Steel Corp.
• Deutsche Bank AG cut the recommendation on JPMorgan Chase & Co. to hold from buy, while upgrading Bank of America Corp. and Wells Fargo & Co. on changing preferences within the banks sector.
• The German government plans to cut its stake in Commerzbank AG as it seizes on a recent share rally to initiate an exit from the lender it rescued over a decade ago.
• Illumina Inc.’s blocked $7 billion takeover of cancer-detection provider Grail Inc. should never have been probed by the European Union, according to a top court ruling that undermines the EU’s attempt to vet more global deals.
• Cathay Pacific Airways Ltd.’s inspection of its Airbus SE A350 fleet is focused on deformed or degraded fuel lines in the engines of the widebody aircraft, after the discovery of the issue caused multiple flight cancellations as engineers switch out parts.

Article content

Key events this week:

• China Caixin services PMI, Wednesday
• Eurozone HCOB services PMI, PPI, Wednesday
• Canada rate decision, Wednesday
• US job openings, factory orders, Beige Book, Wednesday
• Eurozone retail sales, Thursday
• US initial jobless claims, ADP employment, ISM services index, Thursday
• Eurozone GDP, Friday
• US nonfarm payrolls, Friday
• Fed’s John Williams speaks, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.1% as at 7:29 a.m. in Tokyo; the S&P 500 fell 2.1%
• Nasdaq 100 futures fell 0.1%; the Nasdaq 100 fell 3.1%
• Nikkei 225 futures fell 3%
• Hang Seng futures fell 0.6%
• S&P/ASX 200 futures fell 1.2%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%
• The euro was little changed at $1.1042
• The Japanese yen was little changed at 145.54 per dollar

Cryptocurrencies

• Bitcoin fell 0.3% to $58,028.73
• Ether was little changed at $2,464.58

Bonds

• The yield on 10-year Treasuries declined seven basis points to 3.83%

Commodities

• West Texas Intermediate crude was little changed
• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.

—With assistance from Rita Nazareth.

Article content