China Woes Cast Markets Shadow as New Year Begins: Markets Wrap

(Bloomberg) — Chinese shares dragged down Asian equities on the first trading day of the year amid weaker-than-expected factory data and a speech from President Xi Jinping that flagged the headwinds facing the economy. Crude oil rose.

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Hong Kong’s benchmark share gauge slipped as much as 1.9%, while its peers in the mainland and Taiwan also dropped. The losses drove a regional equity benchmark toward its first decline in seven days.

Chinese factory activity shrank in December to the lowest level in six months, official data published Sunday showed, while a private gauge of manufacturing released Tuesday showed a slight gain. Sluggish activity in the world’s second-largest economy also contributed to a slump in factories across Asia.

President Xi in his annual new year address televised Sunday pledged to strengthen economic momentum and job creation, while conceding some “enterprises had a tough time” and “people had difficulty finding jobs and meeting basic needs.”

China’s economy may face another tough year in 2024, said Mark Matthews, head of Asia research at Julius Baer. “President Xi has made it very clear that on the economic front, his priority is bringing down the size of the property sector and its importance in the economy,” he said on Bloomberg Television. “That process is painful.”

As markets’ focus shifts to Europe, investors will be monitoring euro-zone manufacturing data to determine if the region’s economic recovery still has room to run amid global headwinds.

Crude Gains

Oil gained after Iran dispatched a warship to the Red Sea in response to the US Navy’s sinking of three Houthi boats over the weekend, adding to tensions as ships continue to avoid the key waterway.

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Sentiment in Asia was also dented after people familiar said ASML Holding NV, which makes semiconductor manufacturing equipment, canceled shipments of some of its machines to China at the request of US President Joe Biden’s administration.

US stock futures were little changed, while US 10-year note futures dropped. Cash Treasuries were shut in Asia for a holiday in Japan. The yen weakened against all its Group-of-10 peers in thin trading as investors monitored conditions after an earthquake in Japan on Monday.

Bitcoin climbed above $45,000 for the first time in almost two years as anticipation of an approval of an exchange-traded fund investing directly in the biggest token intensified.

Rising Risks

Signs of exhaustion have emerged after a more than $8 trillion surge in the S&P 500 last year. Traders have looked past Federal Reserve uncertainty, recession angst and geopolitical risks. And many who came into 2023 dreading all that have ended up scrambling to chase the rally.

“With an especially rare S&P nine-week winning streak already in the books, the index into resistance near the 4,800 level, and daily and weekly overbought readings, too, these factors combine to say we should expect some type of a consolidation, correction, or pullback — something,” John Roque, technical analyst at 22V Research, wrote in a note.

Meanwhile, despite the persisting weakness in China, some investors consider a slump of almost 60% is a signal to buy Chinese stocks. Almost a third of 417 respondents to Bloomberg’s latest Markets Live Pulse survey say they will increase their China investments over the next 12 months. That compares with just 19% in a similar August survey and is higher than the 25% who planned to boost exposure in March.

Key events this week:

• Eurozone S&P Global Eurozone Manufacturing PMI, Tuesday

• UK S&P Global UK Manufacturing PMI, Tuesday

• Germany unemployment, Wednesday

• US FOMC minutes, ISM Manufacturing, job openings, light vehicle sales, Wednesday

• Richmond Fed President Tom Barkin — an FOMC voter in 2024 — speaks, Wednesday

• China Caixin services PMI, Thursday

• Eurozone S&P Global Eurozone Services PMI, Thursday

• US initial jobless claims, ADP employment, Thursday

• Eurozone CPI, PPI, Friday

• US nonfarm payrolls/unemployment, factory orders, ISM services index, Friday

• Richmond Fed President Tom Barkin — an FOMC voter in 2024 — speaks, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 6:30 a.m. London time. The S&P 500 fell 0.3% on Friday

• Nasdaq 100 futures were little changed. The Nasdaq 100 fell 0.4%

• Euro Stoxx 50 futures rose 0.6%

• Hong Kong’s Hang Seng Index fell 1.7%

• China’s Shanghai Composite Index fell 0.2%

• Australia’s S&P/ASX 200 Index rose 0.5%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro fell 0.1% to $1.1032

• The Japanese yen fell 0.3% to 141.37 per dollar

• The offshore yuan was little changed at 7.1297 per dollar

• The Australian dollar rose 0.3% to $0.6835

• The British pound was little changed at $1.2734

Cryptocurrencies

• Bitcoin rose 3.8% to $45,266.01

• Ether rose 1.9% to $2,381.72

Bonds

Commodities

• West Texas Intermediate crude rose 1.8% to $72.97 a barrel

• Spot gold rose 0.6% to $2,076.03 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Joanna Ossinger and Zhu Lin.

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