(Bloomberg) — Stocks and bonds declined as concern grew that China’s faltering recovery and debt problems will spread to the global economy.
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Instead of reassuring investors, China’s surprise rate cut only deepened anxiety about policy steps to revive growth, with commodity producers leading a decline of 0.7% in Europe’s Stoxx 600. US equity futures pointed to a drop at the open.
Global bonds retreated. Treasury yields extended their climb, with the 10-year rate trading 4.22% for the first time since November. UK gilts fell and the pound climbed after wage growth accelerated to the strongest pace on record.
China’s emergence from pandemic lockdowns has been disappointing and fanned concern that 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 yearend,” said Stephane Ekolo, 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 Russia’s rate hike to stem a slide in the ruble.
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 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.
Story continues
Losses Multiply in Emerging Markets Craving Big Bang Stimulus
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%.
Data for July underscored the economic slide, showing growth in consumer spending, industrial output and investment dropping across the board and unemployment picking up.
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
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 0.7% as of 10:36 a.m. London time
S&P 500 futures fell 0.4%
Nasdaq 100 futures fell 0.3%
Futures on the Dow Jones Industrial Average fell 0.4%
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 0.2% to $1.0929
The Japanese yen was little changed at 145.59 per dollar
The offshore yuan fell 0.5% to 7.3134 per dollar
The British pound rose 0.2% to $1.2713
Cryptocurrencies
Bitcoin rose 0.1% to $29,398
Ether was little changed at $1,841.88
Bonds
The yield on 10-year Treasuries advanced three basis points to 4.22%
Germany’s 10-year yield advanced five basis points to 2.69%
Britain’s 10-year yield advanced four basis points to 4.61%
Commodities
Brent crude was little changed
Spot gold fell 0.2% to $1,903.55 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Tassia Sipahutar and Sagarika Jaisinghani.
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