Stocks struggle as Chinese rate cut pushes oil down

FILE PHOTO – People pass an electronic screen displaying Japan’s Nikkei stock price index in a conference hall in Tokyo, Japan June 14, 2022. REUTERS/Issei Kato

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  • Nikkei Rising, S&P 500 Futures Dip
  • PBOC cuts key interest rates, Chinese data misses forecasts
  • Eyes on Fed Minutes, Earnings

LONDON, Aug. 15 (Reuters) – Global equities struggled to move forward Monday as investors digested the news of an unexpected cut in Chinese interest rates as data pointed to faltering growth in the world’s second-largest economy, causing oil prices fell almost 2%.

Weaker futures on the US stock index also weighed on sentiment, while a more stable dollar knocked gold.

The MSCI All-Country Index (.MIWD00000PUS) was barely firm, as a one-month gain dampened the benchmark’s decline for the year to around 13%.

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China’s central bank cut key interest rates to boost demand as data showed the economy slowed unexpectedly in July, with factory and retail activity weighed down by Beijing’s zero-COVID policy and a real estate crisis. read more

So far, investors have struggled with how much further central banks in the United States and Europe would raise interest rates when they meet next month.

Hopes of smaller rate hikes for signs that US inflation could peak helped Wall Street record its fourth straight week of gains on Friday.

Gains on Wall Street and steady growth rates for Japan propelled the Nikkei (.N225) stock average in Tokyo to its highest point in more than seven months.

“China, I think, is a different situation from the rest of the world. They have a self-imposed recession that they created based on the zero-COVID policy,” said Patrick Armstrong, chief investment officer at investment house Plurimi Group.

“I think it will be fed by the Fed when there is another leg down in the markets. Quantitative tightening, I think, will start in earnest in September and that will take away the liquidity of the market,” Armstrong said.

Markets still give about a 50% chance that the Fed will raise 75 basis points in September and that yields will rise to about 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 investor hopes to show the central bank is starting to turn on rate hikes could be dashed.

“I don’t think (Fed Chairman) Powell is going to say that, I don’t think the minutes will indicate that,” Armstrong said.

In Europe, the STOXX stock index of 600 leading companies rose 0.13% to 441.43 points, still about 10% for the year.

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S&P 500 futures and Nasdaq futures both fell about 0.5% after last week’s gains.

The revenues of major retailers, including Walmart (WMT.N) and Target (TGT.N), will be examined for signs of declining consumer demand.

The cut in Chinese interest rates failed to stop the 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 appears to be in doubt about the Fed’s ability to land a soft landing, while the yield curve remains deeply inverted. The two-year yield of 3.27% is well above that of 10-year bonds which traded at 2.86%.

Those yields 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 equilibrium, falling 0.2% against the euro greenback at $1.02345, after jumping 0.8% last week. Against the yen, the dollar stabilized at 133.51 after losing 1% last week.

“We still feel that the dollar rally will resume in the foreseeable future,” said Jonas Goltermann, senior economist at Capital Economics.

Gold fell 0.8% to $1,786 and lost almost all of its 1% gains last week.

Oil prices fell as China’s disappointing data heightened concerns about global fuel demand.

The head of the world’s largest exporter, Saudi Aramco, said it was ready to ramp up production as production resumes at several offshore platforms in the US Gulf of Mexico after a brief hiatus 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.

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