(Bloomberg) — Stocks fell in Asia and the dollar strengthened as risk appetite was dented by deflation risks in China and threats of a US recession.
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An Asia equity benchmark slipped for a fourth day, heading for the lowest close in more than a month. Shares in Hong Kong and mainland China pared gains after Chinese data showed further declines in factory-gate prices while core inflation slowed. The offshore yuan swung to a loss after the data.
Traders had initially focused on optimism that a crackdown by Beijing on Chinese tech companies was nearing an end, sending the Hang Seng Tech Index up as much as 3.2%, before trimming its advance.
“It is clear that China is facing excess supply now,” said Zhaopeng Xing, senior China strategist at Australia & New Zealand Banking Group Ltd. “Demand side policies will be in need,” with the focus now shifting to expectations of fiscal stimulus before China’s July Politburo meeting, he said.
European stock futures declined, while those for the US extended losses after most American equities dropped Friday when wage data showed inflation remained a threat. The S&P 500 fell 1.2% over the holiday-shortened week, while the Nasdaq 100 dropped 0.9%.
The dollar strengthened against all its Group-of-10 peers. The yen weakened 0.4%, while Japanese stocks were among the worst performers in the region. Treasury yields were little changed, with the two-year remaining below 5%, and the 10-year just above 4%.
Investors continue to face a host of competing forces, including the risk of higher interest rates and recession.
US Treasury Secretary Janet Yellen said on the weekend she wouldn’t rule out the threat of a US recession, noting that it was “appropriate and normal” for growth to moderate and that inflation remains too high.
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“Everyone is looking at inflation or has been looking at inflation for a long time,” Nicolo Bocchin, global head of fixed income at Azimut Group, said on Bloomberg Television. “Now it’s time to look at growth.”
Treasury yields may reach around 4.5% on the long…
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