Chinese shares reopen, Asian stocks fall: markets wrap up

(Bloomberg) — Chinese shares jumped in a stock rally driven by stimulus measures after reopening after a weeklong holiday. Asian equities fell more broadly and the yen gained.

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The benchmark CSI 300 index rose as much as 11% to start the session. Wall Street was dragged down by a tech sell-off, geopolitical anger and bets on a smaller Federal Reserve rate cut after shares fell in Japan, South Korea and Hong Kong.

Investors focused on a briefing by the country's top economic planner set for 10 a.m. for clues on further policy action. The government introduced several stimulus measures ahead of the Golden Week holiday break and Chinese shares have risen since then. Beijing's use of its 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 definitely a lot of support for the market,” JPMorgan Asset Management global market strategist Kerry Craig said on Bloomberg TV. “There is a case that the market may be a bit disappointed if they don't get what they expect in the financial package.”

According to Morgan Stanley, the overheated A-share market and the Chinese government's delivery of recently announced policy stimulus are among the risks investors should watch amid the rally in the Chinese stock market.

Several other investors are also unsure how long the rally will last. Invesco Ltd., JPMorgan Asset Management, HSBC Global Private Banking and Wealth, and Nomura Holdings Inc. Among them are those who view the recent rebound with skepticism and wait for Beijing to back up its stimulus promises with real money.

“So when we expect a pop, we expect more policy news to come out that will support share prices,” said Lauren Tan, director of Asia equity research at Morningstar on Bloomberg TV. “We're probably a lot more picky about who wants to move forward,” he said.

The S&P 500 fell 1% on Monday after a four-week winning run. Alphabet Inc. It sank 2.4% as a judge ruled it must lift restrictions that prevent developers from setting up rival marketplaces that compete with its Google Play Store. Brent crude prices rose above $80 a barrel amid rising tensions in the Middle East. In the wake of Friday's solid jobs data, Treasuries continued to drop — with the 10-year yield topping 4%.

“Friday's strong jobs report not only killed any chance of a 50-basis-point rate cut in November, it also sparked chatter about the Fed keeping rates unchanged if economic data continues to be hotter than expected,” said Chris Larkin at E* Trading from Morgan Stanley. “But as the past week has shown, geopolitics cannot be ignored.”

The Middle East crisis continues to worry investors, with fighting on multiple fronts escalating on Monday after a year of war. Israel's defense forces said they intercepted most of the rockets fired at Tel Aviv by Hamas and other Iran-backed groups. Brent crude rose to its highest level since August as speculation grew that Israel might attack Iran's oil infrastructure. West Texas Intermediate crude oil rose early on Tuesday.

According to Dave Sekera at Morningstar, if there's any more geopolitical upheaval, it will likely encourage risk-off trading — growth stocks are underperforming relative to value.

“Typically, in a risk-free trade, you're going to see rotation in defense stocks, but if you're an investor today, I'd be cautious,” he said. “Some of today's defensive sectors are already overvalued. Contrary to a typical risk-free trade, I think oil stocks will rise.”

With the exception of energy shares, every major sector in the S&P 500 fell on Monday. A gauge of “Magnificent Seven” megacaps slipped 1.9%. Amazon.com Inc. after Wells Fargo Securities cut share price. 3.1% sank. Apple Inc. fell 2.3% as Jefferies analysts said investors had overly optimistic expectations for the latest iPhones. Nvidia Corporation has profited. In Asia, Samsung Electronics Co. reported 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 decline in stocks, Wall Street's two top strategists grew more optimistic on signs of a strong labor market, economic resilience and easing interest rates.

Morgan Stanley's Michael Wilson raised his view on so-called cyclical stocks relative to safer defensive peers, citing Friday's blowout payrolls data and expectations for more cuts from the Fed. David Kostin, his counterpart at Goldman Sachs Group Inc., raised his 12-month target for the benchmark from 6,000 to 6,300 points. The gauge closed at 5,695.94 on Monday.

This week's highlights:

• The Fed's Raphael Bostick, Susan Collins, Philip Jefferson and Adriana Kugler speak Tuesday

• Fed Minutes, Wednesday

• The Fed's Laurie Logan, Raphael Bostick, Austen Goolsby and Mary Daly speak on Wednesday

• US initial jobless claims, CPI, Thursday

• The Fed's John Williams and Thomas Barkin spoke Thursday

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

• US PPI, University of Michigan Consumer Sentiment, Friday

• The Fed's Laurie Logan, Austen Goolsby and Michelle Bowman speak, Friday

Some of the main rice in the market:

stock

• S&P 500 futures were little changed as of 10:37 a.m. Tokyo time

• Nikkei 225 futures (OSE) fell 1%

• Japan's Topix fell 1.2%

• Australia's S&P/ASX 200 fell 0.2%

• Hong Kong's Hang Seng fell 2.9%

• The Shanghai Composite rose 8.1%

• Euro Stoxx 50 futures fell 0.3%

currency

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0983

• The Japanese yen rose 0.2% to 147.89 per dollar

• The offshore yuan rose 0.2% to 7.0566 per dollar

Cryptocurrency

• Bitcoin fell 0.6% to $62,601.04

• Ether fell 0.3% to $2,433.26

bond

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

• Japan's 10-year yield was little changed at 0.925%

• Australia's 10-year yield rose 11 basis points to 4.19%

merchandise

• West Texas Intermediate crude was down 0.6% at $76.67 a barrel

• Spot gold fell 0.2% to $2,638.60 an ounce

This story was produced with the help of Bloomberg Automation.

–Assisted by Sherry Ahn and April Ma.

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