Asian Stocks Take a Breather After Three-Day Rally: Markets Wrap

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(Bloomberg) — Stocks in Asia snapped a three-day winning streak, mirroring a halt in Wall Street’s rally as investors’ risk appetite cooled ahead of Federal Reserve Chair Jerome Powell’s Jackson Hole speech on Friday.

Shares fell in Japan and South Korea, shrugging off improving exports data, after the US benchmark ended an eight-day gain. The Hang Seng Tech Index opened lower after a string of negative news related to the country’s consumption space hit peers trading in the US. JD.com Inc. fell 11% in Hong Kong after a report on Walmart Inc.’s planned stake sale.

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“There was no real news to drive the cross-asset flows, so positioning and liquidity dynamics will likely get the blame,” said Chris Weston, head of research at Pepperstone Group Ltd. “On net, the risk bulls will feel today’s moves have grazed but the wounds will not cut too deep given many have traded this move well and would be sitting on some good profits in equity indices.”

Aside from flows and positioning, the recent rally was also fueled by bets the Federal Reserve will signal it’s getting closer to cutting rates, leading bond traders to take on record amounts of risk as they anticipate a Treasury market rally. 

The dollar steadied after weakening for three sessions as markets await Wednesday’s US payrolls revisions, FOMC minutes and Powell’s speech in Jackson Hole for more clues on the amount and timing of the interest-rate reductions. Emerging Asian currencies such as the Thai baht and the Malaysian ringgit rose, as the Bloomberg Dollar Spot Index hit its lowest since mid-March. 

“It’s probably time for a breather after the furious risk rally of the past fortnight. The turbulence at the beginning of the month is fading further in the rear view mirror,” Alvin Tan, head of Asian currency strategy at Royal Bank of Canada in Singapore, said. “The US dollar has been under significant pressure since Monday. Part of this has to do with the global risk rally.” 

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In Asia, policymakers in Indonesia and Thailand are tipped to keep interest rates unchanged on Wednesday as they weigh uncertainties over political transitions while awaiting the Fed’s imminent easing. Australian 10-year yields fell five basis points in early trading. 

Japan’s equities declined as the yen’s advance raises worries about earnings. The local currency steadied at around 145 against the dollar after rallying Tuesday, as traders await the Bank of Japan governor to speak to parliament on Friday.

Chinese property stocks are in focus as the country considers a new funding option for local governments to sell bonds to buy unsold home, after a series of rescue packages failed to prop up the market. 

The S&P 500 fell below 5,600 Tuesday as Nvidia Corp. — which had rallied almost 25% in six days — led losses in megacaps. Treasury 10-year yields were little changed after declining six basis points. Brent crude declined a third day on the back of a potential cease-fire in Gaza and mounting concern about the global demand outlook, while gold hit a fresh record high.

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Dan Wantrobski at Janney Montgomery Scott says he continues to anticipate ongoing stock-market strength on a near-term basis, but remains on “high alert” for another, potentially bigger corrective wave moving through the August-October time frame. 

“So what happens when everything and everyone is teed up to be bullish,” Wantrobski said. “From a timing perspective, we are headed into a window where there may be high probability for a liquidity event to occur — and the charts, trader positioning, and sentiment are all very vulnerable right now in our view. We smell a ‘bull trap’ ahead. But hope we’re wrong.”

Key events this week:

• US Fed minutes, BLS preliminary annual payrolls revision, Wednesday
• Eurozone HCOB PMI, consumer confidence, Thursday
• ECB publishes account of July rate decision, Thursday
• US initial jobless claims, existing home sales, S&P Global PMI, Thursday
• Japan CPI, Friday
• Bank of Japan Governor Kazuo Ueda to attend special session at Japan’s parliament to discuss July 31 rate hike, Friday
• US new home sales, Friday
• Fed Chair Jerome Powell speaks at Jackson Hole symposium in Wyoming, Friday

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Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 10:25 a.m. Tokyo time
• Japan’s Topix fell 0.6%
• Australia’s S&P/ASX 200 fell 0.4%
• Hong Kong’s Hang Seng fell 1.1%
• The Shanghai Composite fell 0.9%
• Euro Stoxx 50 futures were unchanged
• Nasdaq 100 futures were little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.1125
• The Japanese yen was little changed at 145.36 per dollar
• The offshore yuan was little changed at 7.1235 per dollar
• The Australian dollar was little changed at $0.6748

Cryptocurrencies

• Bitcoin fell 0.7% to $58,921.16
• Ether fell 0.9% to $2,565.74

Bonds

• The yield on 10-year Treasuries was little changed at 3.81%
• Japan’s 10-year yield declined 2.5 basis points to 0.865%
• Australia’s 10-year yield declined five basis points to 3.89%

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.

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