LONDON: Emerging market equities held near one-week lows on Tuesday after Chinese economic data showed the world’s second-largest economy cooled further in October and China’s 10-year Treasury yield hit a three-year high as liquidity tightened.
Chinese retail sales, fixed-asset investment and industrial output for October all missed market forecasts as the government extended a crackdown on debt and factory pollution.
Sentiment was further dented by signs that liquidity in the banking system remains tight, with China’s benchmark 10-year Treasury yields breaching 4 percent, the highest level in three years.
Noting the spike in Treasury yields, Rabobank analysts said: “On the positive side, at least the Chinese yield curve is no longer inverted. On the negative side, you can bank on a serious slowdown ahead in China on that basis.”
Chinese lending data showed a greater than expected fall in new loans in October, an indication that a clampdown on riskier types of financing is taking effect.
Chinese mainland blue-chip shares fell 0.7 percent, posting their worst day since mid-August, with the rest of Asia mainly in the red.
But in emerging Europe, robust third-quarter growth data in Hungary, Poland, Romania and the Czech Republic boosted markets, with Czech GDP growing at the fastest pace in two years.
The Budapest bourse rose 0.8 percent while Warsaw and Bucharest climbed by 0.4-0.5 percent.
The Russian rouble was an underperformer among the cuurencies, falling 0.7 percent against the dollar to a three-month low, with oil prices down 0.4 percent. It was also at its weakest versus the euro since September.
South Africa’s rand, meanwhile, firmed 0.2 percent after hitting a one-year low on Monday in the wake of a top Treasury official’s resignation and warnings from power utility Eskom that it faced serious liquidity issues.
The average yield spread paid by South African sovereign bonds over US Tresuries is at 319 basis points, a one-year high, having risen by 31 basis points since the start of November.
“This has been like watching a slow and unstoppable heavy train that has been rolling for years into junk status with absolutely no official move to stop or even slow it down,” Simon Quijano-Evans, an emerging markets strategist at Legal & General Investment Management, said in a note.
Venezuela remained in focus after S&P downgraded the country’s debt to selective default/default and Fitch downgraded PDVSA’s bonds to restrictive default. Nearly $300 million in late interest payments was due on three bonds on Monday after a 30-day grace period.
S&P said Venezuela could again miss a payment on its outstanding debt obligations or advance a distressed debt exchange operation, equivalent to default, within the next three months.
Venezuelan sovereign debt was mainly a touch firmer but some PDVSA bonds fell further, with the 2035 bond down 1.2 cents, the 2027 bond down 1.4 cents and the 2021 issue down 1.5 cents.
A short creditor meeting held in Caracas on Monday ended with no firm proposals on how the government wanted to renegotiate $60 billion in debt.
Industry body ISDA said it would reconvene on Tuesday to discuss whether PDVSA had triggered a credit default event through a late payment of its 2017N bonds.
Lebanon’s dollar bonds were steady as its Christian Maronite Patriarch made a historic visit to Saudi Arabia. The visit was planned before a diplomatic crisis between the two countries flared up.
Saudi Arabia’s stock market also inched up 0.3 percent, suggesting that pressure from the kingdom’s anti-corruption drive is easing.