China stocks and bonds slide as leverage concerns intensify - Financial Times

China stocks and bonds slide as leverage concerns intensify

Dollar mired around October lows after Fed minutes

Dollar mired around October lows after Fed minutes

It is unclear how much enthusiasm foreign financial groups will have for increasing their investments in China © Bloomberg

Hudson Lockett in Hong Kong and Michael Hunter in London

Thursday - 23/11/2017

What you need to know

China’s stock and bond markets slide on concern over tighter policies on leverage

Dollar remains mired at mid-October lows with Fed looking harder to read in 2018

European stocks fall as investors shun risk with Tokyo and New York markets shut

Oil prices pare gains as lift from US inventories data wanes

Leading quote

“Although I agree that the authorities in China are in favour of deleveraging, I also think there is a higher objective to attract portfolio inflows which requires a strong renminbi exchange rate, and at least stable local asset prices,” says Koon Chow, strategist at UBP.

“To this end the sell off is likely to be temporary.”

Hot topics

Stock markets in China came under heavy pressure after weakness in the country’s bond markets rattled broad investor sentiment, with authorities engaged in moves to cut leverage.

The trepidation over tighter regulation chimed with news that Beijing halted all approvals for new online lending companies, and came amid pressure in corporate bond markets. Investors pushed the yield on China’s 10-year sovereign bond up 1.7 basis points, taking it back over 4 per cent, a level it has crossed above four times in November.

The CSI 300 index of large-cap stocks is down almost three per cent, its biggest one-day fall in around 18 months. The Shanghai Composite is down 2.3 per cent and the Hang Seng in Hong Kong is 1 per cent weaker, after it breached the 30,000-point mark for the first time in a decade on Wednesday.

Tokyo markets are closed for a public holiday.

Meanwhile, the dollar is stuck at its lowest levels since October, with investors having already priced in the prospect of a December rate rise from the Federal Reserve.

The lacklustre trading in the world’s reserve currency reflects a more uncertain outlook at the US central bank after investors read the minutes from its policy meeting last month.

The dollar index is stuck at 93.209, its weakest level since October 20. It is down 0.9 per cent over the last two sessions. The yield on 10-year US Treasuries is down 5 basis points measured from Monday’s close to 2.32 per cent as investors have bought the debt. The demand for it underlines the more cautious feel to trade and the stubborn concerns among investors — and shared by policymakers — about inflation staying persistently under the Fed’s 2 per cent target despite the economic recovery.

There was a warning in the minutes that inflation may remain below target for longer than previously expected. Adding to the uncertainty, the make-up of the Federal Open Market Committee is facing a series of changes — not least a new chairman when Jay Powell replaces Janet Yellen in January.

The dollar is slipping against most other major currencies. The euro is up 0.1 per cent at $1.1829. The yen is 0.1 per cent stronger at ¥110.9 per dollar. Sterling is down 0.1 per cent at $1.3312, but remains around its strongest level since mid October.

The Australian dollar was 0.4 per cent firmer against its US counterpart at $0.7616.

Equities

European equities are under pressure, as the cautious feel to sentiment leaves investors unwilling to re-test recent highs.

London’s FTSE 100 is underperforming its peers, hit by utility stocks after news of a sharp decline in customer numbers as Centrica, one of the sector’s biggest names.

The main London index is down 0.5 per cent, while Frankfurt’s Xetra Dax 30 is off by 0.4 per cent. The Europe-wide Stoxx 600 is down 0.3 per cent.

Financial stocks are also under pressure, with the Euro Stoxx banking index down 0.7 per cent.

Commodities

Oil prices are edging lower. Global marker Brent crude is off 0.3 per cent at $63.14 while US marker West Texas Intermediate is off 0.2 per cent at $57.91.

The benchmarks had climbed about 1 per cent and 2 per cent, respectively, overnight following the release of data from the Energy Information Administration showing that US crude inventories fell last week while gasoline stocks and distillate inventories rose.

Gold is down 0.2 per cent at $1,288.20 per ounce.