Stock Rally Loses Steam as Chinese Shares Decline: Markets Wrap
(Bloomberg) — The global equity rally driven by optimism over a deal to end the US government shutdown stalled in Asia following a report that China is developing a rare earth export system that may complicate access for some American companies.
MSCI’s regional stock gauge swung to a loss of 0.2%, while China’s key share index declined almost 1%. US equity-index futures also gave up earlier gains to trade 0.1% down, while contracts indicated European stocks were set for a tepid open. Gold trimmed its advance, while cash trading in Treasuries was closed due to the Veterans Day holiday in the US. Cryptocurrencies also dropped.
Sentiment weakened after the Wall Street Journal reported that while China will fast-track export approval of rare earths for most companies, it would exclude those with ties to the US military.
The report “hinted at a potential gap in the US-China compromise about China’s export controls, and it created a degree of uncertainty about the durability of the trade ceasefire for one year,” said Homin Lee, a macro strategist at Lombard Odier Singapore.
Rare earths are at the center of the US-China trade dispute, and US President Donald Trump said last week he would look to diversify critical minerals purchases during a meeting with five central Asian countries. The US is seeking to address China’s dominance in rare earths critical to advanced technology manufacturing.
Trump last month brokered a deal with China’s Xi Jinping that saw the US roll back tariffs in exchange for Beijing removing planned export restrictions on critical minerals used in everything from cell phones to jet engines. But with only a temporary truce in place, the White House continued to seek alternative suppliers.
What Bloomberg strategists say…
For now, it is unclear if there is a specific catalyst, but some fingers are pointing at a WSJ story on China rare earths. Should such measures be strictly implemented, that could make importing certain Chinese materials more difficult for automotive and aerospace companies that have both civilian and defense clients. Investors would see that as a potential red flag to the US administration.
— Mark Cranfield, MLIV strategist. For full analysis, click here.
Tuesday’s losses came as cross-asset investors had returned to riskier areas of the market after the recent selling in technology stocks.
Market participants were betting that reopening the US government will restore the flow of key economic data on jobs and inflation, providing greater clarity on the Federal Reserve’s policy path.
A record-setting 41-day US government shutdown is on a path to end as soon as Wednesday after the Senate passed a temporary funding measure backed by a group of eight centrist Democrats. The Senate’s 60-40 vote Monday came amid escalating flight disruptions, food aid delays and frustrations in a federal workforce that has mostly gone without pay for more than a month.
“Conviction remains tentative,” said Hebe Chen, an analyst at Vantage Markets in Melbourne. “While investors welcome the ‘back-to-business’ tone, a month-long data blackout means the next wave of US economic releases could deliver fresh surprises — keeping markets on alert, even amid the optimism.”
Elsewhere, Japan’s 30-year government bond auction Tuesday drew weaker demand than the 12-month average, as renewed concerns about Prime Minister Sanae Takaichi’s fiscal policy drove investor caution.
Takaichi had earlier said she aims to use her first stimulus package to jump-start the economy and initiate a new growth strategy through investment in key industries.
Meanwhile, China also made it harder for some of its state-owned companies to borrow overseas, expanding a campaign to rein in local government debt risks, according to people familiar with the matter.
Corporate News:
Warren Buffett, the billionaire investor who turned an aging textile mill into a conglomerate, said he’s “going quiet,” marking the end of an era for one of the business world’s most-watched investing gurus. CoreWeave Inc. lowered its annual revenue forecast after suffering a delay fulfilling a customer contract, marking a setback for a company that is racing to keep up with the artificial intelligence boom. The European Commission is exploring ways to force European Union member states to phase out Huawei Technologies Co. and ZTE Corp. from their telecommunications networks. Xpeng Inc. shares surged to their highest level in eight months, amid growing optimism over the Chinese electric carmaker’s progress in technologies including humanoid robots. Sony Group Corp. jumped more than 5% after raising its profit outlook. SoftBank Group Corp. reported a surprise quarterly profit jump after a tech rally boosted the value of its holdings in companies such as Nvidia Corp. and Intel Corp., safeguarding Masayoshi Son’s ability to make further bets on artificial intelligence. SoftBank also sold its entire stake in Nvidia Corp., pocketing $5.8 billion. Elliott Investment Management has been building a significant stake in Toyota Industries Corp. and has told the Toyota group company that its proposed privatization price is too low. Some of the main moves in markets:
Stocks
S&P 500 futures were little changed as of 7 a.m. London time Nasdaq 100 futures fell 0.1% The MSCI Asia Pacific Index fell 0.1% Hong Kong’s Hang Seng fell 0.1% The Shanghai Composite fell 0.4% Euro Stoxx 50 futures rose 0.4% Currencies
The Bloomberg Dollar Spot Index rose 0.2% The euro was little changed at $1.1552 The Japanese yen was little changed at 154.23 per dollar The offshore yuan was little changed at 7.1246 per dollar The British pound fell 0.4% to $1.3123 Cryptocurrencies
Bitcoin fell 0.4% to $105,229.25 Ether rose 0.5% to $3,556.86 Bonds
Japan’s 10-year yield was unchanged at 1.690% Australia’s 10-year yield was little changed at 4.39% Commodities
Spot gold rose 0.3% to $4,129.82 an ounce West Texas Intermediate crude fell 0.5% to $59.85 a barrel This story was produced with the assistance of Bloomberg Automation.
–With assistance from Abhishek Vishnoi.
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