September 24, 2023

La Ronge Northerner

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Global stocks are weakening on growth concerns in China

Global stocks are weakening on growth concerns in China

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Global stocks fell on Wednesday, after weaker-than-expected data from China dampened sentiment as investors waited for minutes from the Federal Reserve’s June monetary policy meeting.

Wall Street’s benchmark S&P fell 0.2 percent and the heavy Nasdaq Composite was flat, as US markets reopened after the Independence Day holiday.

The declines came as investors turned their attention to the release of minutes from the Federal Reserve’s latest meeting later on Wednesday, hoping to gauge policymakers’ expectations about future interest rates.

The US central bank chose to hold the federal interest rate steady in June, at a target range between 5% and 5.25%, but has indicated that its tightening campaign will not end until inflation returns to its 2% target.

“We do not expect a negative reaction from the markets, because the markets are fully prepared for this [hawkish] “The Fed’s tone is on the record,” said Moopen Tahir, director of macroeconomic research and tactical solutions at WisdomTree Europe.

“Markets are realizing that central banks are becoming too hawkish…the prevailing sentiment is that the Fed is over-hyping when it comes to inflation, and the pessimistic pivots are only a matter of time.”

Traders will closely watch US payroll data released on Friday, hoping to gauge the impact on the economy of the 16 months since the Fed began raising interest rates, higher borrowing costs.

Meanwhile, the pan-European Stoxx 600 index lost 0.7 percent, dragged down by a decline in basic materials and technology stocks, the French Cac 40 index fell 0.8 percent and the FTSE 100 index lost 0.8 percent.

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Indexes fell after service sector data from China fell short of expectations, raising concerns that the world’s second-largest economy was struggling to recover after years of severe pandemic restrictions.

The closely watched Caixin services PMI came in at 53.9 on Wednesday, down from 57.1 for May and below the consensus estimate of 56.2. Readings above 50 indicate an expansion in activity.

“The service sector recovery appears to be slowing, after the initial strong burst of growth right after China rolled back its zero Covid policy,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.

“This calls for a measured easing approach but not a massive stimulus. This is likely to be followed by limited fiscal and quasi-fiscal measures and targeted monetary policy,” he noted.

The People’s Bank of China last month cut its record lending rates for the first time in nearly a year, as policymakers offered cautious monetary support in a bid to spur stronger growth.

China’s CSI 300 fell 0.8% and Hong Kong’s Hang Seng lost 1.6% after the data was released. Japanese Topix was flat.

Moreover, geopolitical tensions between the US and China have investors worried about the tech sector, as earlier in the week Beijing imposed new export controls on gallium and germanium products used in semiconductors.

Oil prices continued to rise from the previous session, prompted by the announcement that two of the world’s largest producers, Saudi Arabia and Russia, intend to cut supplies in August.

Brent crude, the international benchmark, rose 0.8 percent to $76.82 a barrel. West Texas Intermediate, which is dependent on US oil prices, rose 3.24 percent to $72.04.

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