Stocks struggle as China price cuts send oil tumbling

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

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  • Nikkei edges up, S&P 500 futures dip
  • PBOC cuts key rates, China data badly misses forecasts
  • Fed minutes, eyes on earnings

LONDON, Aug 15 (Reuters) – Global stocks struggled to advance on Monday as investors digested news of an unexpected cut in China’s interest rates, as growth in the world’s second-largest economy slowed and oil prices fell nearly 2%.

Weaker US stock index futures also weighed on sentiment, while a steady dollar weighed on gold.

MSCI All Countries Index (.MIWD00000PUS) So firm was the one-month advance that narrowed the benchmark’s decline to around 13% for the year.

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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 Beijing’s zero-covid policy and an asset crisis. read more

Investors are still grappling with how much central banks in the US and Europe will raise interest rates when they meet next month.

Hopes of small rate hikes on signs that U.S. inflation may be peaking helped Wall Street post a fourth straight week of gains on Friday.

Wall Street’s gains and steady growth figures for Japan helped the Nikkei (.N225) The stock average rose to a more than seven-month high in Tokyo.

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

“I think if there is another leg in the markets it will be driven by the Fed. Quantitative tightening, which will start in earnest in September, is going to take liquidity back out of the market,” Armstrong said.

Markets still indicate a 50% chance the central bank will hike 75 basis points in September, and that rates will rise to 3.50-3.75% by the end of the year.

The central bank will release minutes from its last rate-setting meeting on Wednesday, but investors’ hopes will show the central bank is beginning to focus on rate hikes.

“I don’t think (Fed Chair) 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 down 10% for the year.

Fed Rate Futures and Stocks

US futures ease

Both the S&P 500 futures and Nasdaq futures were down 0.5% after last week’s gains.

Revenue from major retailers including Walmart (WMT.N) and target (TGT.N)Flagging consumers will be examined for signs of demand.

Chinese interest rate cuts fail to stop Chinese blue chips (.CSI300) It eased 0.13%, while the yuan and bond yields also fell. read more

Geopolitical stakes are high with a delegation of US lawmakers in Taiwan for a two-day visit. read more

With the yield curve deeply inverted, the bond market is still skeptical that the Fed can create a soft landing. The two-year yield of 3.27% was higher than the 10-year note, which traded at 2.86%.

That yield underpinned the U.S. dollar, which fell 0.8% against a basket of currencies last week as risk sentiment improved.

But the dollar steadied somewhat on Monday, with the euro down 0.2% to $1.02345 against the greenback after jumping 0.8% last week. Against the yen, the dollar was at 133.51 after losing 1% last week.

“Our sense is that the dollar rally will resume before too long,” argued Jonas Goldermann, senior economist at Capital Economics.

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

Oil prices fell as disappointing data from China added to worries about global demand for the fuel.

Saudi Aramco, the world’s top exporter, said it was poised to boost output when production resumed at several offshore US Gulf of Mexico platforms after a brief outage last week.

Brent fell 1.8% to $96.35 a barrel, while U.S. crude was down 1.9% to $90.34 a barrel.

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Report by Wayne Cole; Editing by Sam Holmes, Raju Gopalakrishnan and Ed Osmond

Our Standards: Thomson Reuters Trust Principles.

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