Amid fears of tighter restrictions to contain the pandemic, Asian stocks are at the lowest level of 2021 as investors turn to Wall Street.
The week starts at the lowest in Asia, with China’s major stocks (CSI300) down 4.4%, the lowest since last December, and the biggest daily decline in a year. Among the hardest hit are the education and real estate sectors, which are suffering from concerns about tightening health measures.
“We believe that the Chinese economy, and more specifically its financial system, will face significant risks in the coming months due to the unprecedented tightening measures applied to the real estate sector,” Nomura economists warned in a statement.
The index of major stocks in the Asia-Pacific region outside Japan, MSCI, was dragged down by the fall in Chinese stocks and lost 2%, also exceeding its lowest level since December.
Japan‘s Nikkei index, meanwhile, gained 0.9% but failed to break out of its seven-month low. Nasdaq NQc1 futures, however, were down just 0.1% from all-time highs.
S&P 500 ESc1 futures lost 0.3%. EUROSTOXX 50 STXEc1 and FTSE FFIc1 futures both fell 0.5%. This week, nearly a third of the S&P 500 companies (Facebook, Tesla, Apple, Microsoft, Amazon…) are scheduled to release their quarterly results this week.
While one-fifth of the S&P 500 companies have already released their results, 88% of them beat analysts’ expectations. On that basis of confidence, global fund managers have poured over $900 billion into U.S. funds in the first half of 2021.
According to Olivier Jones, senior market economist at Capital Economics, expects U.S. earnings to be about 50 percent higher in 2023 than they were before the pandemic.
“With that kind of optimism, it seems likely to us that the tailwind of rising earnings expectations, which has supported the stock market so much over the past year, is fading,” he said.
The U.S. Federal Reserve (Fed) meets Tuesday and Wednesday, and while no policy changes are expected, Fed Chairman Jerome Powell is expected to clarify what would be “substantial additional progress” announced on jobs.
“The main message from Fed Chairman Jerome Powell’s post-meeting press conference should be consistent with his testimony before Congress in mid-July, when he signaled there was no urgency to cut interest rates,” said Kevin Cummins, economist at NatWest Markets.
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