European stocks fell and government bond yields climbed as inflationary fears fueled bets interest rates will stay higher for longer. China’s yuan retreated to its weakest since November after a surprise interest-rate cut.
(Bloomberg) — European stocks fell and government bond yields climbed as inflationary fears fueled bets interest rates will stay higher for longer. China’s yuan retreated to its weakest since November after a surprise interest-rate cut.
Europe’s Stoxx 600 lost as much as 0.6%, while US futures pointed to a drop at the open. UK gilts retreated and the pound climbed after wage growth accelerated to the strongest pace on record. Short- and long-maturity US Treasury yields rose.
The UK data underscored investor fear that a pivot to lower interest rates in the developed world is still a long way off as traders look to the minutes of the Federal Reserve’s July policy later in the week for clues on the central bank’s next move.
Red flags in China’s economy are also rattling markets, and the central bank’s surprise move comes after a devaluation in Argentina. Russia’s policy makers followed by hoisting the key rate 350 basis points to stem a slide in the ruble.
The Chinese currency slipped as much as 0.5% after policymakers lowered the rate on one-year loans — known as the medium-term lending facility — by 15 basis points to 2.5%. Only one of 15 economists surveyed by Bloomberg had predicted the move, which came shortly before the release of disappointing data for July showing growth in consumer spending, industrial output and investment sliding across the board and unemployment picking up.
China’s rate cut “is a positive but I suspect the support to the market from this will be subdued and short-lived,” said Redmond Wong, a market strategist at Saxo Capital Markets HK Ltd. “Investors now are worried about credit events, not just from the ailing property sector.”
Sentiment has been soured by debt concerns at Country Garden Holdings Co., once the nation’s largest developer by sales, missed payments by one of the nation’s largest private wealth managers, and heavy losses at China-focused hedge funds.
Russia raised its key rate to 12% from 8.5% after the ruble weakened past 100 per dollar on Monday. Argentina’s already-distressed debt slumped Monday after a populist who vowed to burn down the central bank won surprisingly strong support in a primary vote. Its under siege government submitted to a 18% currency devaluation.
The focus later this week will be on minutes of the Fed’s July policy meeting as traders seek clues on the central bank’s next move. Investors who’d bet on a pivot to easier policy this year are also having to adjust their bets as officials signal they will keep interest rates higher for longer.
“The fact that the FOMC has effectively communicated its commitment to restrictive policy and successfully pushed cut pricing into 2024 leaves relatively less incentive to press terminal forecasts higher from here,” BMO Capital Markets strategist Benjamin Jeffery and Ian Lyngen said in a note.
Elsewhere, oil was little changed and gold held near its lowest close since March as traders pared expectations for Fed rate cuts next year and beyond.
Corporate Highlights:
- Hawaiian Electric Industries Inc. plunged by a record 34% on concern that its power lines may be linked to the deadly Maui wildfires
- US Steel Corp. surged 37% after the company got a rival $7.8 billion takeover offer from Esmark Inc. following peer Cleveland-Cliffs Inc.’s unsolicited bid
- Tesla Inc. slipped 1.2%, triggering a selloff for other producers of electric vehicles, after it rolled out a new round of price cuts in China
Stocks
- The Stoxx Europe 600 fell 0.6% as of 8:43 a.m. London time
- S&P 500 futures fell 0.3%
- Nasdaq 100 futures fell 0.3%
- Futures on the Dow Jones Industrial Average fell 0.4%
- The MSCI Asia Pacific Index fell 0.1%
- The MSCI Emerging Markets Index fell 0.4%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.2% to $1.0925
- The Japanese yen fell 0.1% to 145.72 per dollar
- The offshore yuan fell 0.4% to 7.3074 per dollar
- The British pound rose 0.1% to $1.2700
Cryptocurrencies
- Bitcoin was little changed at $29,344.19
- Ether fell 0.1% to $1,840.6
Bonds
- The yield on 10-year Treasuries advanced two basis points to 4.21%
- Germany’s 10-year yield advanced four basis points to 2.68%
- Britain’s 10-year yield advanced six basis points to 4.63%
Commodities
- Brent crude fell 0.2% to $86 a barrel
- Spot gold fell 0.1% to $1,904.76 an ounce
This story was produced with the assistance of Bloomberg Automation.
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