Stocks and bonds declined as concern grew that China’s faltering recovery and debt problems will spread to the global economy.
(Bloomberg) — Stocks and bonds declined as concern grew that China’s faltering recovery and debt problems will spread to the global economy.
Instead of reassuring investors, China’s surprise rate cut only deepened anxiety about policy steps to revive growth, driving Europe’s Stoxx 600 index down as much as 1.2% to the lowest in a month. US equity futures pointed to a retreat at the open.
Global bonds fell. Treasury yields extended their climb, with the 10-year rate trading at 4.23%, the highest since October. UK gilts slid and the pound climbed after wage growth accelerated to the strongest pace on record.
China’s emergence from pandemic lockdowns has been disappointing, fanning concern the world’s economic engine is sputtering. The nation is struggling to contain a potential default at developer Country Garden Holdings Co. after it missed payments on its debt.
“China property worries and today China unexpectedly cutting two key rates are sending a clear signal that growth may not reach its GDP guidance of 5% by year-end,” said Stephane Ekolo, a strategist at TFS Derivatives. “Hence global growth is likely to suffer and the probability of a real slowdown or recession is growing.”
China’s rate cut came amid a raft of news depressing risk appetite, from a devaluation in Argentina to an attempt by Russia on Tuesday to stem the ruble’s slide with an emergency rate hike.
The ruble erased earlier gains and resumed its drop after Russia raised its key rate to 12% from 8.5% and said another increase is possible. Argentina’s already-distressed debt slumped 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.
Losses Multiply in Emerging Markets Craving Big Bang Stimulus
China’s yuan 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%. Data for July underscored the economic slide, showing growth in consumer spending, industrial output and investment dropping across the board and unemployment picking up.
Still, Bank of America Corp.’s latest global survey of fund managers found investors the least pessimistic on stocks since February of last year, before the Federal Reserve began one of the most aggressive tightening cycles in decades.
While participants predicted global growth will weaken over the next 12 months, expectations “improved significantly in August” and recession concerns are fading, according to the survey conducted from August 4 to August 10. Investors are increasingly expecting no recession at all within the next 18 months, and a “soft landing” in the next 12 months remains the base case, BofA strategists led by Michael Hartnett wrote in a note.
Elsewhere, oil fell and gold held near its lowest close since March as traders pared expectations for Fed rate cuts next year and beyond.
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 having to adjust their bets as officials signal they will keep interest rates higher for longer.
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 1.1% as of 11:42 a.m. London time
- S&P 500 futures fell 0.6%
- Nasdaq 100 futures fell 0.6%
- Futures on the Dow Jones Industrial Average fell 0.6%
- The MSCI Asia Pacific Index fell 0.2%
- The MSCI Emerging Markets Index fell 0.5%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.3% to $1.0936
- The Japanese yen was little changed at 145.53 per dollar
- The offshore yuan fell 0.5% to 7.3153 per dollar
- The British pound rose 0.2% to $1.2714
Cryptocurrencies
- Bitcoin was little changed at $29,377.25
- Ether fell 0.1% to $1,840.96
Bonds
- The yield on 10-year Treasuries advanced four basis points to 4.23%
- Germany’s 10-year yield advanced eight basis points to 2.72%
- Britain’s 10-year yield advanced six basis points to 4.63%
Commodities
- Brent crude fell 0.5% to $85.78 a barrel
- Spot gold fell 0.2% to $1,903.14 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Tassia Sipahutar and Sagarika Jaisinghani.
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