Chinese stocks drop with Aussie on Moody's cut

China’s stocks declined after Moody’s Investors Service cut its rating on the country’s debt, saying the outlook for its financial strength will worsen. The Aussie dollar dropped.

The Shanghai Composite Index headed for the lowest closing level since October as Moody’s reduced its rating on China amid concerns over rising debt and slowing economic growth. Outside Chinese and Hong Kong markets, most Asian stocks were higher.

British assets remain in focus in the wake of the suicide bombing in Manchester, as Prime Minister Theresa May warned that further attacks could be imminent. Oil extended a five-day surge.

The bleaker outlook on China comes after evidence this week in support of strengthening global growth as reports showed the German economy is firing on all cylinders and France’s is gathering momentum.

Attention is also on the US, with the Federal Reserve due to release minutes from its most recent meeting, offering more clues on the pace of interest-rate increases.

"Moody’s rating’s cut on China is weighing on people’s minds with the Shanghai Composite Index continuing its slide, a stark contrast to other equity markets that are trading around fresh highs," Norihiro Fujito, a Tokyo-based senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

"Apart from China, investors will be on the lookout for any potential negative developments on Trump-Russia investigations."

Stock markets in the US have recovered most of the value erased when the S&P 500 slumped on May 17 amid concern surrounding the prospects for President Donald Trump’s reform policies.

Still, doubts about the pace of inflation have pushed Treasuries higher ahead of next month’s Fed decision.

Fed Bank of Philadelphia President Patrick Harker said June “is a distinct possibility” for the US central bank’s second interest-rate increase of 2017. He told reporters that another downside surprise on inflation would “worry me a little bit.”

Here are some key upcoming events:

ECB President Mario Draghi speaks in Madrid on Wednesday. Trump’s tour heads to Group of Seven and NATO meetings in Europe.

Thailand and Canada both release monetary policy decision on Wednesday, followed by South Korea on Thursday.

Opec will meet in Vienna on Thursday, with major oil producers edging closer to extending an agreement to curb output.

Here are the main moves in markets:
Stocks

The Shanghai Composite fell 0.5% as of 2:12 in Tokyo. The Hang Seng slipped 0.1%. Futures on the S&P 500 slid 0.1%. The underlying gauge rose 0.2% on Tuesday, reaching as high as 2 400.85, two points from a closing record.

Japan’s Topix index increased 0.5%. Australia’s S&P/ASX 200 Index rose 0.1% and South Korea’s Kospi index advanced 0.2%.  Indonesia’s benchmark index slumped 0.9%.

Currencies

The yen fell 0.1% to 111.87 per dollar. The Australian dollar fell 0.5%, snapping a three-day advance.

The Bloomberg Dollar Spot Index rose 0.1% after climbing 0.3% on Tuesday, recovering from a drop close to the lowest level since November 4.

The pound rose 0.1% to $1.2974, following a two-day loss.

Bonds

The yield on 10-year Treasury notes held at 2.28% on Wednesday. Bonds fell during the previous four days. Australian 10-year yields climbed three basis points to 2.48%.

Commodities

Oil rose 0.2% to $51.55 a barrel, adding to a five-day advance. Gold was little changed at $1 251.97 an ounce, after dropping 0.8% on Tuesday.

Copper fell 0.9% while iron ore futures dropped 4.7%, adding to a 3% drop in the previous session.