Treasuries Steady After Rally, China Woes in Focus: Markets Wrap

(Bloomberg) — Treasuries steadied after rebounding in the previous session following a reduction in this quarter’s US borrowing levels. Weakness in Chinese equities weighed on regional sentiment.

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Yields fell Monday after the cut in the quarterly borrowing estimate by the US Treasury eased concerns about the flood of debt being issued to cover the federal deficit. Futures contracts on US equities were mostly unchanged after Wall Street climbed to fresh records.

Hong Kong and mainland China shares fell at the open, paring gains earlier seen in MSCI Inc.’s Asia Pacific equity gauge. Sentiment was clouded by the looming impact of China Evergrande Group’s liquidation order with its stocks remaining on suspension amid ongoing concern about the nation’s struggling economy.

Mounting expectations for more policy easing in China drove the benchmark government bond yield to fall to its lowest in nearly 22 years.

Meanwhile, shares were higher in Japan and South Korea. Australian stocks pared gains, but remained on track to close at a record high.

The dollar traded lower, underperforming against most of its Group-of-10 peers. The New Zealand dollar extended its advance against the greenback following comments from Paul Conway, chief economist at the Reserve Bank of New Zealand, and the cut in US’ borrowing levels.

Oil was steady as the market waited for a US response to the deadly attack on American troops in Jordan, which could risk an escalation of tensions in a region key to global crude production.

In the US, the next few days will be crucial to determine whether stock valuations — particularly those of megacap US technology companies — are sustainable given that investors are pricing in significant earnings growth expectations in anticipation of rate cuts coming sooner than Fed officials project, according to JPMorgan Chase & Co.’s Marko Kolanovic.

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This week marks the busiest this season for US earnings as well, with results from Microsoft Corp., Alphabet Inc., Apple Inc., Amazon.com Inc. and Meta Platforms Inc. As most of the megacaps remain in record territory, there are concerns that investors are overexposed to just a handful of stocks, which could open the door for some pain if quarterly results underwhelm.

“This week could be key,” said Chris Larkin at E*Trade from Morgan Stanley. “If the market is going to sustain its latest breakout, it may need to avoid earnings disappointments from this week’s big-tech lineup, get encouraging news from the Fed on interest rates, and see jobs numbers that are solid, but not too hot.”

Investors are also on the lookout for the Federal Reserve’s rate decision and a raft of data from consumer confidence to jobs. Going into this week’s two-day Fed policy meeting, investors are assigning roughly even odds to the prospect that the central bank will start lowering borrowing costs at its next decision in March.

Key events this week:

• Eurozone economic confidence, GDP, consumer confidence, Tuesday

• US Conf. Board consumer confidence, JOLTS jobs openings, Tuesday

• Microsoft, Alphabet earnings, Tuesday

• China non-manufacturing PMI, manufacturing PMI, Wednesday

• Japan industrial production, retail sales, housing starts, Wednesday

• Bank of Japan issues summary of opinions from January policy meeting, Wednesday

• Boeing announces earnings amid US government safety probe, Wednesday

• Federal Reserve interest rate decision and Fed Chair Jerome Powell’s news conference, Wednesday

• US Treasury quarterly refunding, Wednesday

• China Caixin manufacturing PMI, Thursday

• Eurozone S&P Global Manufacturing PMI, CPI, unemployment, Thursday

• US productivity, construction spending, ISM Manufacturing, initial jobless claims, Thursday

• Apple, Amazon, Meta, Deutsche Bank, BNP Paribas earnings, Thursday

• Bank of England interest rate decision, Thursday

• US employment report, University of Michigan consumer sentiment, factory orders, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 10:54 a.m. Tokyo time. The S&P 500 rose 0.8%

• Nasdaq 100 futures were little changed. The Nasdaq 100 rose 1%

• Japan’s Topix was little changed

• Australia’s S&P/ASX 200 rose 0.4%

• Hong Kong’s Hang Seng fell 1.7%

• The Shanghai Composite fell 0.9%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0836

• The Japanese yen rose 0.2% to 147.25 per dollar

• The offshore yuan was little changed at 7.1853 per dollar

• The Australian dollar rose 0.1% to $0.6618

Cryptocurrencies

• Bitcoin rose 0.5% to $43,403.19

• Ether rose 0.3% to $2,314.18

Bonds

• The yield on 10-year Treasuries was little changed at 4.07%

• Japan’s 10-year yield was little changed at 0.715%

• Australia’s 10-year yield declined six basis points to 4.16%

Commodities

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