BLBG: Stocks Drop With Commodities as Offshore Chinese Assets Retreat
PBOC said to suspend some cross-border flows as yuan gap grows
Hong Kong-listed China stocks are biggest losers in Asia
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Stocks fell with commodities as the divergence between onshore Chinese assets and their freely-traded offshore counterparts widened, underscoring pressures facing the world’s second-largest economy as it grapples with slowing growth.
The Hang Seng China Enterprises Index fell for a third day, taking its 2015 underperformance versus the Shanghai Composite Index to 29 percent, while the gap between the yuan in Hong Kong and the mainland unit hit its widest in three months. West Texas Intermediate crude dropped 1.9 percent and industrial metals fell. Standard & Poor’s 500 Index futures slipped with the Stoxx Europe 600 Index. The MSCI All-Country World Index was little changed, leaving it 2.9 percent lower in 2015.
“The China market is likely to remain volatile in the first half as growth will slow further and the yuan is expected to weaken,” said William Wong, head of sales trading at Shenwan Hongyuan Group Co. in Hong Kong. “H shares are vulnerable as more U.S. rate hikes will affect the economy in Hong Kong as well as market sentiment.”
China suspended cross-border currency business for some foreign banks, Reuters reported citing people familiar with the matter, as the gap between the onshore and offshore yuan exchange rates widened. U.S. consumer confidence and home-price data that showed the world’s biggest economy continues to strengthen helped boost the dollar and Treasury yields Tuesday, with data on pending home sales due Wednesday.
Global equities are heading for their steepest annual drop since 2011, dragged lower as the weakening of China’s economy exacerbates the biggest yearly retreat in commodity prices in seven years. The Bloomberg Commodity Index is down about 25 percent in 2015, while global bonds lost 2.7 percent, according to a Bank of America Merrill Lynch index. The S&P 500’s rally Tuesday left it 1 percent higher for the year.
“We’ll keep on being moved by the oil price,” said Chihiro Ohta, general manager of investment information at SMBC Nikko Securities Inc. in Tokyo. “We’ll have to keep being aware of this for the first three months or the first half of next year as well.”
China
The Hang Seng China Enterprises Index slipped 1.3 percent. The gauge of Hong Kong-traded Chinese shares is the worst-performing major measure in Asia in 2015, with its 19 percent drop standing in contrast to the 10 percent advance of the Shanghai Composite Index.
“One reason for the different moves is the restrictions China placed on onshore markets, while H shares do not have such restrictions,” said Bernard Aw, a strategist at IG Asia Pte in Singapore. “China placed selling restrictions after the June sell-off, and although it also tried to go after short-sellers in Hong Kong, it was probably not very successful at that.”
The offshore yuan fell for a third day, sliding as much as 0.53 percent to 6.6094 per dollar, the weakest it’s been since January 2011. Even as China’s central bank lowered its daily reference rate for the onshore unit to levels not seen since May 2011, the gap between the two has widened to 1.6 percent. That makes it profitable to buy the yuan in Hong Kong and sell it in Shanghai.
The People’s Bank of China suspended some cross-border yuan business from Tuesday until late March, according to people with direct knowledge of the matter who asked not to be identified because they weren’t authorized to speak publicly on the matter. The onshore yuan will probably drop 3.1 percent from now by the end of next year, according to analysts’ and traders’ median forecasts in a Bloomberg survey.
Stocks
The Stoxx Europe 600 Index fell 0.4 percent by 8:26 a.m. in London after adding 1.4 percent yesterday. European stocks are heading for their worst December drop since 2002.
S&P 500 futures dropped 0.2 percent. The measure rose 1.1 percent on Tuesday in New York, as technology shares surged 1.4 percent. Stocks are defying the historical trend of gains in the final month of the year, with the benchmark index down by 0.1 percent, after a series of sharp rallies and selloffs.
Australia’s S&P/ASX 200 climbed 1 percent for a ninth straight advance, while its New Zealand counterpart gained 0.4 percent to close a record. Japan’s Topix index added 0.3 percent, helping the MSCI Asia Pacific Index to a 0.1 percent gain. Volumes were at least 20 percent below average across Asia.
The regional gauge has lost 4.3 percent in 2015 and is heading for its first back-to-back annual retreat since 2002. BHP Billiton Ltd. has been the biggest single drag on the gauge as the global rout in commodities saw the world’s biggest mining company drop 34 percent through Tuesday in Sydney, its biggest annual retreat since 1982.
Singapore’s Noble Group Ltd is the biggest decliner on the Asian regional benchmark gauge this year. The commodity trader slid 8 percent on Wednesday, extending its 2015 slump to 65 percent, after Moody’s Investors Service cut its credit rating to junk on concern about the company’s liquidity amid the rout in raw materials.
Commodities
WTI futures crude slipped to $37.12 a barrel after advancing 2.9 percent Tuesday. Brent dropped 1.5 percent after settling 3.2 percent higher at $37.79.
U.S. crude inventories probably fell for a second week, according to a Bloomberg survey before government data Wednesday. Saudi Arabia’s 2016 spending plan assumes a Brent price of $37 a barrel, according to John Sfakianakis, a Riyadh-based economist at Ashmore Group Plc and a former government adviser.
North American natural gas futures dropped 3.3 percent after a four-day, 26 percent rally. Forecasts for frigid weather in the Midwest and the Northeast, the biggest burners of the heating fuel, allayed some fears that the springlike weather earlier this month will extend into the new year and expand a supply glut already at a seasonal record.
Industrial metals retreated after U.S.-traded copper futures rose the most in more than a week on Tuesday as Chinese refiners agreed to cut sales of the metal that’s trading near a six-year low. Gold for immediate delivery fell 0.1 percent.
Bonds
U.S. 10-year Treasuries were higher Wednesday, with yields dropping two basis points. The rate on the notes jumped eight basis points to 2.31 percent in the previous session. Demand for government securities is waning as the Federal Reserve begins raising interest rates.
A $35 billion sale of five-year debt saw the highest yield at an auction since September 2014, while a gauge of demand fell to the lowest since July 2009. A sale of two-year securities on Monday also drew the lowest level of bidding since 2009. Demand will face another test with the Treasury scheduled to sell $29 billion of seven-year securities Wednesday.
European bonds were little changed. The yield on Australian 10-year notes also rose, adding 12 basis points to 2.80 percent, even as bond risk in the Asia-Pacific region declined, paring its increase for the year.
The Markit iTraxx Asia index of credit-default swaps fell 2 basis points to 135 basis points, according to prices from Westpac Banking Corp. That leaves it up 29 basis points this year, set for the biggest annual increase since 2011.
