Stocks, bonds advance as China takes action on property slump

BLOOMBERG

Stocks and bonds rose as China moved to address a worsening property slump, shoring up confidence in global markets.  US and European equity futures advanced, while bond yields ticked lower. The moves came after China’s banking regulator announced it would set up a task force to examine risks at Zhongzhi Enterprise Group Co. The company, one of the nation’s largest largest private wealth managers, had missed payments on investment products sold to high-net worth clients and corporations.
That came as news broke that Country Garden Holdings Co is seeking to extend a maturing bond for the first time. The Chinese developer is soliciting some bondholders’ feedback on a proposal to extend payment of a yuan note due on September 2, people familiar with the matter said.  Once China’s largest private-sector developer by sales, the company is at risk of joining a slew of defaulters if it fails to make coupon payments on two dollar bonds within a 30-day grace period.
“It’s such a significant financial shock to the system that the authorities will do everything they can to contain it,” said Andrew Bell, chief executive officer at Witan Investment Trust.  “I suspect the risk of contagion beyond China is pretty low. But it is another reason for markets to be a little bit cautious over the summer.”
Shares in mainland China declined while almost all of the 80 members of Hong Kong’s Hang Seng Index slipped on Monday. The CSI 300 Index, which is the benchmark of onshore Chinese shares, is now close to erasing all of the gains it made after the Politburo meeting in July amid signs of deterioration in the economy.  Yields on government bonds in Europe ticked lower.  Treasury yields were steady near levels last seen in November on speculation the Federal Reserve will keep interest rates in restrictive territory and disappoint investors hoping for easier policy.
Focus later this week will be on minutes of Fed’s latest policy meeting as traders seek clues on the central bank’s next move.
“Equity markets have had quite a strong rally over the last two or three months on hopes that we’re about to see the peak in interest rates,” Bell said.
“The market was traveling a little bit on fumes, and now we have to live through the good news before before you can jump another step higher.”
The yen steadied after breaching its year-high level of 145.07 versus the dollar as investors started to monitor for any signs the government may intervene as it did last year. The ruble weakened beyond the psychologically important level of 100 to the dollar for the first time since March last year, as Russia’s war in Ukraine drags on and international sanctions throttle the economy.