LONDON/SINGAPORE, – European markets edged lower, and Hong Kong stocks experienced a sharp decline on Tuesday as the absence of concrete details regarding China’s anticipated fiscal stimulus led to fading optimism among investors.
In contrast, U.S. stock futures showed signs of recovery following a decline on Monday. The drop in U.S. markets came as investors digested a surge in oil prices amidst escalating tensions in the Middle East and re-evaluated expectations for interest rate cuts after the release of robust U.S. jobs data.
Hong Kong Stocks Tumble After Chinese Holiday Rally
Hong Kong’s Hang Seng Index fell 9.4%, surrendering some of the significant gains it had accumulated during China’s week-long National Day holiday. The downturn reflected profit-taking among investors and growing impatience over the lack of clarity on Beijing’s fiscal plans.
European shares also dipped, with stocks linked to China’s mining and luxury sectors among the hardest hit, although they managed a slight rebound later in the day. The pan-European Stoxx 600 index dropped 0.44%, while the UK’s FTSE 100 slid 1.07%, and Germany’s DAX slipped 0.13%.
Meanwhile, China’s CSI300 blue-chip index initially surged 10% as Chinese markets reopened, marking its highest point since July 2022. However, enthusiasm waned as the index closed up 5.9% after Zheng Shanjie, China’s economic planning chief, failed to provide specifics on new fiscal stimulus measures to accompany earlier monetary policy actions.
“Essentially, the markets were anticipating that China would unveil more detailed fiscal stimulus measures,” said Aneeka Gupta, director of macroeconomic research at WisdomTree. “Clearly that has not panned out as they’ve reopened today, and I think that’s having a bit of a dampening impact on European stocks.”
U.S. Futures Gain Despite Rate and Geopolitical Concerns
Following a 1% drop in U.S. stocks on Monday, European markets took their cue from across the Atlantic. However, U.S. futures showed signs of resilience on Tuesday. Futures for the S&P 500 index rose 0.3%, while Nasdaq 100 contracts climbed 0.4%.
Oil Prices Retreat After Middle East Surge
Oil prices, which had jumped due to escalating violence in the Middle East and concerns over potential supply disruptions from U.S. storms, eased on Tuesday. Brent crude futures fell 1.7%, trading at $79.49 per barrel, down from the previous session’s surge above $80—the first time in over a month.
The ongoing conflict in the region remained in focus, as Hezbollah’s deputy leader indicated support for ceasefire efforts in Lebanon, following Israeli ground operations in the country’s southwest.
Bond Yields and Rate Cut Speculation
Yields on U.S. 10-year Treasury bonds hovered above 4%, rising after Friday’s unexpectedly strong U.S. jobs report. The market is now pricing in about a 10% chance that the Federal Reserve could pause rate hikes next month, with expectations of around 50 basis points of cuts over the remainder of the year.
“The market was too aggressive going into the payroll numbers in terms of rate cut pricing,” commented Guy Miller, chief market strategist at Zurich Insurance Group. “Where we stand today is probably close to what I would call fair value for Fed pricing.”
Dollar and Commodities Movement
The U.S. dollar softened, falling 0.2% against the Japanese yen to 147.91, while the euro edged up 0.1% to $1.0983. In the commodities market, copper prices dropped to a two-week low as traders reacted to the underwhelming details on China’s economic support measures.
As markets navigate through geopolitical risks and central bank policy signals, investors remain cautious, awaiting more clarity from Beijing and tracking developments in the Middle East closely.
Source: Reuters