Chinese equity markets finished down sharply but pared some losses from an early tumble Monday, after news that the world’s second-biggest economy had beaten expectations with 6.9% second-quarter growth.
They had earlier been hit by a plunge in small-cap stocks following a signal from a high-profile financial conference that Beijing is focused on tighter control of the economy. Policy makers at the National Financial Work Conference, which is held every five years and wrapped up on Saturday, mentioned “risk” 31 times and “regulation” 28 times, noted Jack Siu, an investment strategist for Asia-Pacific at Credit Suisse .
“Good news is now bad news,” said Siu. “The logic behind that is the [People’s Bank of China] and the government are looking to balance the risk prevention versus a moderate GDP growth.”
Read: China’s industrial output speeds up in June
The Shanghai Composite SHCOMP, -1.43% , after being down as much as 2.6%, ended the day off 1.4%.
The Shenzhen Composite 399106, -4.28% closed down 4.3%, finishing near its lows for the session. Hong Kong shares reversed early declines, leaving the Hang Seng Index HSI, +0.31% up 0.2% by the close of trading.
Adding to Monday’s early gloom was a series of profit warnings from small-cap Chinese companies. Several listed stocks U-turned on their financial-health projections.
“There’s a couple of small midcap companies that suddenly changed their guidance from profit to significant loss and I don’t think that was expected by the market,” said Caroline Yu Maurer, head of Greater China equities at BNP Paribas Investment Partners.
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With the financial conference’s focus on regulatory scrutiny and the trend of investor flows from small-caps into large caps — whose profits have been fairly robust — it added up to “the perfect storm of negative events,” she added.
It overcame the People’s Bank of China’s biggest liquidity injection since June 6. It pumped a net 140 billion yuan ($20.68 billion) into the interbank market Monday.
Equity markets elsewhere in the region were broadly higher at the start of the week, following gains in U.S. indexes as interest-rate concerns eased. Softer-than-expected U.S. economic data on Friday could compel the Federal Reserve to hold off increases for longer than expected, analysts say. That helped drive the Dow Jones Industrial Average and the S&P 500 to record closes last week.
South Korea’s Kospi index SEU, -0.11% rose 0.4%, boosted by a 0.3% gain for index heavyweight Samsung 005930, -0.24% . Singapore’s Straits Times Index STI, +0.33% was up 0.3%, while New Zealand’s NZX 50 NZ50GR, +0.02% rose 0.7%. Japanese markets were closed for a public holiday.
The U.S. data “really induced the market to pare back rate hike expectations,” said Jingyi Pan, a market strategist at IG Group. The likelihood of a rate increase at each meeting before December is seen as less than 15%, according to CME Group data.
In Australia, the S&P/ASX 200 XJO, -0.10% was flat down 0.2% the Australian dollar AUDUSD, -0.0897% pulled back after rallying against the U.S. dollar Friday to a near two-year high of US$0.7836.
More gains for the Australian dollar are likely this week, supported by encouraging Chinese economic activity and favorable Australian employment conditions, said the Commonwealth Bank of Australia .
Oil prices CLQ7, +0.04% were modestly higher in Asia following further gains on Friday in the U.S.; the shutdown of a Nigerian oil pipeline gave the market a lift. Futures rose some 5% last week, helped by Friday’s subdued growth in the U.S. oil-rig count.
Prices rose every day last week as investors of late have taken a glass-half-full view on the crude market, noted ANZ Research, amid some encouraging data points.
The Stoxx Europe 600 SXXP, +0.01% closed up by less than 2 points at 386.86, paring its gain as most major European stocks tilted lower. Last week, the Stoxx 600 rose 1.8%, the largest advance since early May.
Among key benchmarks Monday, France’s CAC 40 index PX1, -0.10% slipped 0.1% to 5,230.17, and Germany’s DAX 30 index DAX, -0.35% shed 0.4% at 12,587.16.
In Frankfurt, shares of Deutsche Boerse AG DB1, -1.35% fell 1.4% after RBC downgraded the exchange operator to sector perform from outperform, saying a strong run up in the shares have left them outperforming their peer group and broader indices.
But the telecom group put in the best performance Monday on the Stoxx 600, with Telenor ASA TEL, +8.20% soaring 8.2% after the Norwegian telecom company launched a new share buyback program and raised guidance.
Miners: Gains in the basic materials group were led by mining stocks, which were bolstered after China’s second-quarter gross domestic product growth came in at 6.9%, higher than a 6.8% estimate in a Wall Street Journal survey of economists. Data from China, a major consumer of industrial and precious metals, also showed strengthening in industrial production and retail sales.
In the group, shares of copper producer Antofagasta PLC ANTO, +2.27% rose 2.3%, gold miner Centamin PLC CEY, +2.26% picked up 2.3% and Swedish miner and smelter Boliden AB BOL, +1.26% ended 1.3% higher. Steel pipes producer Tenaris SA TEN, +0.92% moved up 0.9%.
China’s “solid growth reinforces recoveries for commodity exporters and keeps 2017’s pickup in global growth on track,” said Bill Adams, senior international economist at PNC Financial Services Group, in a note. “And with little sign of global inflationary pressure from either labor markets or commodity prices, this global expansion has room to run.”
Stock movers: Carillion PLC shares CLLN, +19.15% zoomed up 19% as the infrastructure services company’s joint venture partnership won two U.K. government contracts worth 1.4 billion pounds ($1.80 billion) to help build Britain’s planned High Speed 2 railway. Carillion shares in recent sessions had lost more than 70% of their value after the company issued a profit warning and said its chief executive Richard Howson stepped down.
Balfour Beatty PLC’s BBY, +3.20% joint venture also landed two HS2 contracts, valued at £2.5 billion. Its shares claimed at 2.8% rise.
ITV PLC shares ITV, +1.31% climbed 3.2% after the U.K. broadcaster said easyJet PLC’s EZJ, +1.42% boss Carolyn McCall will become its new chief executive on Jan. 8. EasyJet said it’s already started looking for McCall’s successor. Shares of the budget airline reversed course and rose 0.3%.
Other indexes: The U.K.’s FTSE 100 index UKX, +0.35% closed up 0.4% at 7,404.13, aided by mining stocks. Spain’s IBEX 35 IBEX, -0.04% shed 3.9 points to end at 10,651.20.
The euro EURUSD, +0.0174% traded at $1.1475, around late Friday’s settlement at $1.1470. In focus this week will be the European Central Bank’s policy meeting on Thursday.
Data: Eurozone inflation in June met an initial estimate of 1.3%, according to figures from Eurostat.
The Dow Jones Industrial Average DJIA, -0.04% declined 8.02 points to close at 21,629.72, just short of Friday’s all-time closing high. Shares of J.P. Morgan Chase & Co. JPM, -0.93% and International Business Machines Corp. IBM, -0.80% weighed on the average, while Microsoft Corp. MSFT, +0.78% and Home Depot Inc. HD, +0.66% led gainers.
The S&P 500 SPX, -0.01% which also ended at a record Friday, declined 0.13 points to close at 2,459.14.
Seven of the 11 primary S&P 500 sectors rose on the day, with health care leading decliners with a 0.3% dip. Utilities gained 0.4% while consumer-discretionary shares rose 0.3%, with traditional retailers showing signs of life as shares of Macy’s Inc. M, +3.09% closed up 3.1% and Kohl’s Corp. KSS, +2.73% shares gained 2.7%. As some have noted, insiders at retailers are starting to buy up shares. For the year, Macy’s is down 36%, and Kohl’s is down 19%.
The Nasdaq Composite Index COMP, +0.03% rose 1.97 points to close at 6,314.43, just shy of its last record close of 6,321.76 set June 8.
Need to know: Investors should pay attention to this ‘chart of the week, month and potentially year’
Whether stocks can extend further into record territory hinges partly on the outcome for earnings, with investors looking for signs that valuations are justified by the strength of corporate results, particularly given doubts about Washington’s ability to deliver a roster of Wall Street-friendly legislations.
Read: What stock market’s string of all-time highs says about the future
Some 68 S&P 500 companies will report earnings this week, according to FactSet. Those include Bank of America Corp. BAC, -0.78% , Goldman Sachs Group Inc. GS, +0.29% , Microsoft Corp. MSFT, +0.78% and General Electric Co. GE, +0.15%
Those last three are likely to give a “nice flavor” of what to expect this earnings season, said J.J. Kinahan, chief strategist at TD Ameritrade, in an interview.
Goldman is likely to be a wild card in that it derives a sizable chunk of revenue from trading, which has been on the light side this past quarter, while Microsoft and GE will give a preview of global growth trends from tech and industrials, respectively, Kinahan said. But on the whole, investors have become a little more cautious heading into earnings, he said.
“No one likes or respects all-time highs in stocks, and earnings drive the market,” Kinahan said. “Expectations have been tempered over the past week or two, especially with a stalling legislative agenda, but there’s cautious optimism with good, not great, numbers.”
Read: Stock market poised to ride stellar earnings to new heights
What will give stocks a push higher: While earnings are important, tax legislation remains the most important political issue for U.S. stocks, said Michael J. Wilson, equity strategist at Morgan Stanley, in a note to clients on Monday.
He said equity multiples must expand again for the S&P 500 to reach its 2017 target of 2,700, but the catalyst on that expansion would likely be “more policy ‘certainty’ rather than the outcome itself.”
“No matter what gets passed in the next few months, we think just moving forward with a decision on the Affordable Care Act and taxes will provide the certainty necessary for companies and individuals to ‘act’ on their higher confidence readings which have remained elevated,” said Wilson.
On the economic-data front, the New York Fed’s Empire State manufacturing index fell to a seasonally adjusted reading of 9.8 from 19.8 in June. Analysts were looking for a reading of 15.
Stocks to watch: Shares of investment manager BlackRock Inc. BLK, -3.13% closed down 3.1% after reporting a profit and sales miss, despite massive inflows into its low-fee exchange-traded funds.
Shares of J.B. Hunt Transport Services Inc. JBHT, +1.83% gained 1.8% despite posting a profit that was below expectations.
Blue Apron Holdings Inc. APRN, -10.46% tumbled more than 10% after Amazon.com Inc. AMZN, +0.82% filed a trademark for a meal kit service, suggesting the newly public company could face competition from the retail giant — a scenario that had already been spooking Blue Apron investors since Amazon’s proposed acquisition of Whole Foods Market Inc. WFM, -0.50%
Read: Four key sectors to watch closely this earnings season
Other markets: In China, the Shanghai Composite Index COMP, +0.03% closed down 1.4%, but off earlier lows as data showed expansion in the world’s second-biggest economy that beat forecasts with 6.9% second-quarter growth. Helping to spark the selling, Chinese officials at a financial conference hinted at tighter controls on the economy.
Opinion: China is playing a weak hand with the U.S.
European stocks SXXP, +0.01% closed slightly higher, with the FTSE 100 index UKX, +0.35% gaining but Germany’s DAX 30 DAX, -0.35% falling.
Oil prices CLQ7, +0.07% declined 1.1% to settle at $46.02 a barrel, while gold futures GCQ7, -0.07% settled 0.5% higher at $1,233.70 an ounce. The dollar DXY, +0.00% was slightly lower. Meanwhile, the benchmark 10-year Treasury note yield TMUBMUSD10Y, -0.31% was down 2 basis points at 2.309%.
—Barbara Kollmeyer in Madrid contributed to this report.