Asian stocks slide in cautious trade, ignore US rally
Asian stocks slid in cautious trading on Wednesday, ignoring a rally on Wall Street led by tech companies and banks that wiped out most of the losses from the previous day’s sell-off.
Japan’s benchmark Nikkei 225 fell 1% in morning trading to 27,544.06, after opening higher. South Korea’s Kospi fell 1.0% to 2,932.15. The Australian S & P / ASX 200 lost 0.5% to 7,209.40. Hong Kong’s Hang Seng fell nearly 0.9% to 23,899.34. Trade has been closed in Shanghai for Chinese holidays.
Concerns remain in Asia over ongoing coronavirus infections, although hopes are growing that economic activity will be closer to normal later this year, rebounding from the deep downturn in 2020.
“On the risk front, China’s credit problems and contagion risks have certainly not abated, with developer concerns still surfacing. As such, caution has not been thrown to the winds, ”said Tan Boon Heng of the Asia and Oceania Treasury Department of Mizuho Bank in Singapore.
The risk of real estate developer China Evergrande Group defaulting on its debt of more than $ 300 billion has alarmed investors already worried about the slowdown in Chinese growth.
In Japan, markets are reassured that they can expect the same in economic policies under the new leadership of the ruling Liberal Democratic Party. Yoshimasa Maruyama and Koya Miyamae, economists at SMBC Nikko Securities, said comments from Shunichi Suzuki, the new finance minister taking office this week, indicate that he is sticking to “orthodox” policies.
But fears remain about the world’s third-largest economy. Fitch’s agency maintained a “negative outlook” on the Japanese economy, citing “downside risks to the macroeconomic and fiscal outlook from the coronavirus shock.”
Shares fell in New Zealand after its central bank raised interest rates for the first time in more than seven years on Wednesday, removing some of the support it put in place when the coronavirus pandemic began .
The Reserve Bank raised the benchmark rate from a record high of 0.25% to 0.5%. The move came despite a lockdown in Auckland due to a coronavirus outbreak.
The bank said inflation is expected to rise to 4% in the short term before falling to 2% in the medium term.
On Wall Street, the S&P 500 rose 1.1% to 4,345.72. The Dow Jones Industrial Average rose 0.9% to 34,314.67, and the Nasdaq gained 1.3% to 14,433.83. Small business stocks also posted gains. The Russell 2000 Index rose 0.5% to 2,228.36.
The gains marked a reversal in the overall market trajectory in recent weeks. The S&P 500 fell 4.8% in September, its first monthly decline since January. After steadily losing ground since reaching an all-time high on September 2, the index slipped below its 100-day moving average of 4,354 on Tuesday. This sends a signal to traders that the index has reached “A good level of support for stocks to trade higher,” said Terry Sandven, chief equity strategist at US Bank Wealth Management.
“Today’s activity is mostly in response to the weakness we’ve experienced over the past 10 days or so,” he said.
Many companies focused on consumer services have gained traction following an encouraging update on the service sector, which is the largest part of the US economy. The Institute for Supply Management said the sector continued to grow in September and at a faster pace than economists expected. Chipotle rose 1.4% and Carmax gained 3%.
The market has been choppy for weeks, with inflation concerns driving up and down swings for tech companies and the market at large.
Rising inflation prompts companies from Nike to Sherwin-Williams to moderate their sales forecasts and warn investors that higher costs would hurt financial results. Supply chain disruptions and delays, as well as rising raw material costs, are among the main challenges businesses face as they try to continue to recover from the impact of the pandemic.
The persistent pandemic and global supply chain issues have prompted the International Monetary Fund to downgrade its global growth forecast this year.
Yet Wall Street still expects solid corporate profit growth when the third quarter earnings season kicks off later this month. S&P 500 companies are expected to post a 27.7% increase in profits for the July-September quarter from a year earlier, according to FactSet.
“We are now on the doorstep of the third quarter releases, which we believe will show earnings increasing, and this is a basis for stocks to tend to rise,” Sandven said.
Facebook grew 2.1%. The stock fell nearly 5% on Monday as the company suffered a global outage and faced political fallout after a former employee told “60 Minutes” that the company had always chosen its own interests rather than the public good. The former employee, Frances Haugen, testified before Congress on Tuesday.
In energy trading, benchmark US crude fell 12 cents to $ 78.81 a barrel in electronic trading on the New York Mercantile Exchange. It gained $ 1.31 to $ 78.93 a barrel on Tuesday.
Brent crude, the international standard, fell 8 cents to $ 82.48 a barrel.
In currency trading, the US dollar rose from 111.47 yen to 111.59 Japanese yen. The euro cost $ 1.1596, compared to $ 1.1601.