(Bloomberg) — Stocks and bonds tumbled on growing fears that China’s slowing economic recovery and debt problems would spill over to the global economy.
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Far from reassuring investors, China’s surprise rate cut only deepened fears about policy measures to revive growth, sending Europe’s Stoxx600 index down as much as 1.2% to a one-month low. US stock futures signaled a pullback at the opening.
Global bonds fell. Yields on U.S. Treasuries continued to rise, with the 10-year rate trading at 4.23%, the highest level since October. British bonds fell and the pound gained as wage growth accelerated to a record pace.
China’s exit from the pandemic lockdown has been a disappointment, fueling fears that the engine of the global economy is stalling. The country is struggling to contain the possibility of default, with developer Country Garden Holdings failing to pay its debts.
“China’s real estate concerns and China’s unexpected cut in two key interest rates today mean growth may fall short of its 5% GDP target by the end of the year,” said Stephan Ecolo, strategist at TFS Derivatives. It gives a clear signal that there is.” “Therefore, global economic growth is likely to slow, increasing the likelihood of a substantial slowdown or recession.”
China’s rate cut comes amid a flurry of news that has dampened risk appetite, from Argentina’s currency devaluation to Russia’s attempt to stem the ruble’s decline with an emergency rate hike on Tuesday.
After Russia raised its key policy rate to 12% from 8.5% and said it could raise interest rates further, the ruble erased previous gains and resumed its decline. Populists who have vowed to burn down the central bank have won surprisingly strong support in the primary vote, squeezing Argentina’s already beleaguered debt. The besieged government responded with an 18% currency devaluation.
Losses Rise in Emerging Markets Seeking Big Bang Stimulus
China’s yuan fell by as much as 0.5 percentage points after policymakers cut the one-year lending rate, known as the medium-term lending facility, by 15 basis points to 2.5%. The July statistics highlighted the sluggish economy, with growth in consumer spending, industrial production and investment falling across the board, and the unemployment rate rising.
Still, the latest global survey of fund managers conducted by Bank of America finds that investment has fallen since February last year, before the Federal Reserve launched its most aggressive tightening cycle in decades. Houses turned out to be the least pessimistic about stocks.
Participants expect global economic growth to slow over the next 12 months, according to a survey conducted from 4 to 10 August, conducted from 4 to 10 August. Expectations “improved significantly in August,” according to the survey, and recession fears are fading. Investors are increasingly betting that there will be no recession at all within the next 18 months. In a memo, BofA strategists, led by Michael Hartnett, said a “soft landing” within the next 12 months is the base case.
Elsewhere, oil fell and gold held near its lowest level since March as traders refrained from predicting a rate cut by the Fed next year.
The focus later this week will be on the minutes of the Fed’s July policy meeting as traders seek clues on the central bank’s next move. Investors who had bet on a policy turnaround this year are having to adjust their bets as officials signal they will keep rates high for the long term.
The main movements in the market are:
stock
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As of 11:42 am London time, the Stoxx Europe 600 was down 1.1%.
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S&P 500 Futures Down 0.6%
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Nasdaq 100 futures down 0.6%
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Dow Jones Industrial Average futures down 0.6%
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MSCI Asia-Pacific Index Falls 0.2%
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MSCI Emerging Markets Index Falls 0.5%
currency
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Bloomberg Dollar Spot Index Little Change
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The euro rose 0.3% to $1.0936.
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The Japanese yen is almost unchanged at 145.53 yen per dollar.
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The offshore yuan fell 0.5 percent to 7.3153 to the dollar.
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The British pound rose 0.2% to $1.2714.
Cryptocurrency
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Bitcoin almost unchanged at $29,377.25
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Ether fell 0.1% to $1,840.96.
bond
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The 10-year Treasury yield rose four basis points to 4.23%.
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German 10-year bond yields rose 8 basis points to 2.72%.
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UK 10-year bond yields rose 6 basis points to 4.63%.
merchandise
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Brent crude fell 0.5% to $85.78 a barrel.
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Gold spot fell 0.2% to $1,903.14 an ounce.
This article was produced in partnership with Bloomberg Automation.
–With help from Tassia Sipahutar and Sagarika Jaisinghani.
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