FILE PHOTO: People walk past an electronic screen showing Japan’s Nikkei stock price index inside a conference room in Tokyo, Japan June 14, 2022. REUTERS/Issei Kato
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- https://tmsnrt.rs/2zpUAr4
- Nikkei rises, S&P 500 futures fall
- PBOC Cuts Key Rates, China Data Misses Forecasts
- Looking at Fed minutes, you earn them
LONDON, Aug 15 (Reuters) – Global stocks struggled to move ahead on Monday as investors digested news of an unexpected cut in Chinese interest rates as data pointed to faltering growth in the No. 2 economy largest in the world, causing oil prices to fall by almost 2%.
Weaker US stock index futures also weighed on sentiment, while a steadier dollar hit gold.
The MSCI All-Country Index (.MIWD00000PUS) was barely firmer, a one-month advance that pared the benchmark’s year-to-date decline to 13%.
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China’s central bank cut key lending rates to revive demand as data showed the economy unexpectedly slowed in July, with factory and retail activity squeezed by policy zero-covid of Beijing and a real estate crisis. Read more
Until now, investors have been grappling with how much more the U.S. and European central banks would raise rates when they meet next month.
Hopes of smaller rate hikes on signs that US inflation could peak helped Wall Street post its fourth straight week of gains on Friday.
Wall Street gains and steady growth figures from Japan helped the Nikkei share average (.N225) in Tokyo jump to its highest in more than seven months.
“I think China is a different situation than the rest of the world. They have a self-imposed recession that they have created from the zero COVID policy,” said Patrick Armstrong, chief investment officer at investment house Plurimi Group.
“I think it will be driven by the Fed if there is another leg down in the markets. I think quantitative tightening will start in earnest in September and that will take liquidity out of the market,” Armstrong said.
Markets are still implying about a 50% chance that the Fed will hike 75 basis points in September and that rates will rise to around 3.50-3.75% by the end of the year.
The Fed will release the minutes of its latest rate-setting meeting on Wednesday, but investors’ hopes for signs that the central bank is beginning to pivot on rate hikes could be dashed.
“I don’t think (Fed Chair) Powell said that, I don’t think the minutes say that,” Armstrong said.
In Europe, the STOXX share index of 600 leading companies rose 0.13% to 441.43 points, down around 10% for the year.
Fed Futures and Stocks
THE FUTURE OF THE USA MAKES IT EASY
S&P 500 futures and Nasdaq futures were down about 0.5% after last week’s gains.
Earnings from major retailers, including Walmart ( WMT.N ) and Target ( TGT.N ), will be scrutinized for signs of waning consumer demand.
The cut in Chinese interest rates did not prevent Chinese blue chips (.CSI300) from falling 0.13%, while the yuan and bond yields also fell. Read more
Geopolitical risks remain high with a delegation of US lawmakers in Taiwan for a two-day trip. Read more
The bond market still seems doubtful that the Fed can produce a soft landing, with the yield curve remaining deeply inverted. The two-year yields at 3.27% are much higher than the 10-year notes which were trading at 2.86%.
Those returns have supported the US dollar, although it fell 0.8% against a basket of currencies last week as risk sentiment improved.
But on Monday, the dollar regained some balance, with the euro falling 0.2% against the greenback to $1.02345 after rallying 0.8% last week. Against the yen, the dollar was flat at 133.51 after losing 1% last week.
“Our feeling remains that the dollar’s recovery will resume soon,” argued Jonas Goltermann, senior economist at Capital Economics.
Gold was down 0.8% at $1,786, giving up almost all of its 1% gains last week.
Oil prices fell as disappointing data from China raised concerns about global fuel demand.
The head of the world’s top exporter, Saudi Aramco, said he was ready to raise output as output at several platforms in the US Gulf of Mexico resumes after a brief outage last week.
Brent fell 1.8% to $96.35, while US crude fell 1.9% to $90.34 a barrel.
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Reporting by Wayne Cole; Editing by Sam Holmes, Raju Gopalakrishnan and Ed Osmond
Our standards: the Thomson Reuters Trust Principles.