Stocks fall on China data risk sentiment: Markets wrap

(Bloomberg) — European shares and U.S. stock futures edged lower in Asian shares after the latest data from China showed more weakness in the world’s second-largest economy.

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The Stoxx Europe 600 index fell 0.4% at the open, with all industrial sectors in the red and real estate leading the decline. S&P 500 and Nasdaq 100 contracts followed suit, suggesting U.S. stocks could slide as markets reopen after the Independence Day holiday.

China’s sputtering services industry raises concerns about the outlook for global economic growth at a time when most major central banks are still on a tighter stance. With more interest-rate hikes expected from the Federal Reserve and the European Central Bank in July, aggregate borrowing costs as calculated by Bloomberg Economics now show a peak of 6.25% this quarter, up from 6% three months ago.

Fears that the U.S. could be headed for recession after a stellar first-half rally driven by megacap tech stocks dampened demand for stocks. Traders will monitor minutes from the central bank’s latest policy meeting, which left Wall Street reeling as officials paused their rate hike cycle after 10 consecutive moves, but forecast two more hikes this year.

“It’s too early to say how deep the coming recession will be, but clearly a recession is coming,” Fabiana Fedeli, chief investment officer for equities and multi-assets at M&G Plc, told Bloomberg TV. “Be it equity or credit, it is too early to throw in risk assets. But at the same time you have to be very high on the quality pole.

The level of dollar strength was flat, while the yield on policy-sensitive two-year Treasuries fell two basis points to 4.92% as US bond trading resumed.

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Early losses in Chinese stocks deepened and the offshore yuan reversed gains as the Caixin China Services Purchasing Managers’ Index came in weaker than expected. The fall in the yuan was also notable because it came despite the central bank earlier maintaining support for the currency in its daily fix.

“It’s refocusing on slowing growth and the recent uptick in geopolitical tensions,” Saru Sanana, market strategist at Saxo Capital Markets, said of the China Services data.

Dim confidence in the outlook for China has prompted investors to lower expectations for gains in Asian stocks this year. A survey of 17 strategists and fund managers by Bloomberg News indicated that MSCI Inc’s Asia-Pacific index could rise only 5% by the end of the year from Tuesday’s close.

Elsewhere, oil retreated after rallying on Tuesday on Saudi Arabian and Russian production cuts. Traders are awaiting critical commentary from the Saudi energy minister. Gold changed little.

Highlights of this week:

• The OPEC international seminar, with speakers including OPEC+ oil ministers, begins in Vienna on Wednesday

• The FOMC will release minutes from its June policy meeting on Wednesday

• New York Fed President John Williams in a “fireside chat” at the Federal Reserve Research Association’s meeting at the New York Fed on Wednesday.

• US Initial Jobless Claims, Trade, ISM Services, Jobs, Thursday

• Dallas Fed President Lori Logan speaks on a panel about policy challenges for central banks at the CEBRA meeting on Thursday.

• US unemployment rate, non-farm payrolls, Friday

• The ECB’s Christine Lagarde addresses an event in France on Friday

Some key moves in today’s markets:

Shares

• The Stoxx Europe 600 was down 0.4% as of 8:14 a.m. London time.

• S&P 500 futures fell 0.2%

• Nasdaq 100 futures fell 0.4%

• Futures for the Dow Jones industrial average fell 0.2%

• The MSCI Asia Pacific index fell 0.5%

• The MSCI emerging market index fell 0.6%

Coins

• The Bloomberg Dollar Spot Index was little changed

• The euro rose 0.2% to $1.0903

• The Japanese yen was little changed at 144.61 per dollar

• The offshore yuan fell 0.3% to 7.2482 per dollar

• The British pound was little changed at $1.2720

Cryptocurrencies

• Wikipedia changed small to $30,813.75

• Ether fell 0.2% to $1,937.58

Bonds

• The yield on 10-year Treasuries was little changed at 3.86%.

• Germany’s 10-year yield was little changed at 2.46%

• Britain’s 10-year yield rose two basis points to 4.44%

materials

• Brent crude fell 0.6% to $75.82 a barrel

• Spot gold was down 0.1% at $1,923.55 an ounce

This story was produced with the help of Bloomberg Automation.

–With assistance from Richard Henderson and Allegra Catelli.

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