Weak Services Industry Data from China Weighs on Global Stocks
Global stocks stumbled on Wednesday following the release of weak services-industry data from China, raising concerns about the global economy’s outlook. US equity futures and European stocks followed Asian shares lower, suggesting a potential decline for US stocks when trading resumes after the Independence Day holiday.
Contracts on the S&P 500 and Nasdaq 100 both fell approximately 0.5%, with United Parcel Service Inc. falling in premarket trading due to concerns over an impending strike by employees over pay. However, Monster Beverage Corp. saw a gain of more than 2% ahead of its upcoming earnings report on Thursday.
Meanwhile, the yield on policy-sensitive two-year Treasuries dropped about three basis points to 4.91%, while the 10-year yield experienced fluctuations around 3.86%. Additionally, a gauge of the dollar edged higher.
The recent evidence of slowing economic growth worldwide has dampened demand for equities, following a strong rally in the first half of the year, largely driven by mega-cap tech stocks. Central banks, including the Federal Reserve and the European Central Bank, have been tightening their monetary policies, putting the brakes on economic growth.
Fabiana Fedeli, the chief investment officer for equities and multi-assets at M&G Plc, noted, “It’s too early to say how deep the recession that is to come will be, but clearly a slowdown is coming.” Fedeli emphasized the need to remain cautious but highlighted the importance of staying invested in risk assets of high quality.
The Stoxx Europe 600 Index slid around 0.6%, mostly driven by concerns about waning minerals demand from China, which affected miners. Furthermore, an index tracking the region’s purchasing managers’ index was revised lower, further contributing to the decline. French grocer Casino Guichard-Perrachon SA experienced a sharp plunge of up to 42% as investors weighed various offers aimed at rescuing the struggling company. In contrast, European bonds gained, with Germany’s 10-year yield dipping four basis points to 2.41%.
Looking ahead, with the anticipation of further interest-rate hikes from the Federal Reserve and the European Central Bank in July, Bloomberg Economics calculated an aggregate gauge of borrowing costs to peak at 6.25% this quarter, up from the previously forecasted 6%. Additionally, traders await the release of the minutes from the Fed’s last policy meeting, during which officials paused their rate-hike cycle after ten consecutive moves but forecasted two additional increases for the year.
As for Asian markets, initial losses in Chinese equities deepened and the offshore yuan reversed an advance upon the release of the Caixin China Services Purchasing Managers’ Index, which was weaker than expected. This data, coupled with growing geopolitical concerns, has dampened optimism regarding the outlook for China. According to a survey conducted by Bloomberg News, investors have lowered their expectations for gains in Asian equities this year, with MSCI Inc.’s Asia-Pacific Index projected to rise only about 5% by year-end.
In other news, Brent crude oil remained steady after rallying on Tuesday due to output cuts from Saudi Arabia and Russia. Traders are now anxiously awaiting critical commentary from the Saudi energy minister. Gold also experienced minimal changes.
Key events to watch out for this week include the OPEC International Seminar, the release of FOMC minutes on the June policy meeting, and various economic indicators from the US, such as jobless claims, trade data, ISM services, job openings, and the unemployment rate.
This article was produced with the assistance of Bloomberg Automation.