Global stocks gain, dollar plunges as investors assess spending data, inflation scares

  • Global markets are firming up
  • China’s economy slowed sharply in Q2
  • US yields and the dollar retreat after comments from Fed officials

WASHINGTON, July 15 (Reuters) – Global stocks rebounded on Friday as U.S. spending data beat forecasts, while the dollar fell and oil rose as investors digested an easing of Italy’s political crisis and tempering expectations of a more aggressive US rate hike this month.

However, markets are still troubled by fears that the global economy is heading into recession as central banks race to rein in runaway inflation, with sharp interest rate hikes seen this week in Canada, New Zealand, Chile, South Korea and the Philippines. .

Fears of an economic slowdown were further stoked on Friday by Chinese data showing 0.4% annualized growth in the second quarter, the worst since at least 1992, excluding the start of 2020 when the COVID pandemic took hold. bursts. Read more

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The data reflects the colossal blow of widespread COVID lockdowns. It sent Chinese stocks down 1.7% and dragged an Asian ex-Japan index to two-year lows (.CSI300), (.MIAPJ0000PUS).

But investors elsewhere have looked on the bright side.

“Today’s price action…would come down to Fed Governors potentially ruling out 100 basis points, so some cooling off of the panic price action we saw earlier in the week,” said Rohan Khanna, strategist at UBS.

He referenced Thursday’s comments from Federal Reserve Governor Christopher Waller and St. Louis Fed President James Bullard.

Considered political hawks, the two officials said they favored a 75 basis point rate hike in July rather than the 100 basis points some had been betting on after data showed US inflation at 9.1% in June.

Meanwhile, Italy’s president rejected Prime Minister Mario Draghi’s resignation, averting an immediate government collapse although the fate of the coalition remains up in the air.

The pan-European STOXX 600 index (.STOXX) rose 1.31% and the MSCI gauge of stocks across the world (.MIWD00000PUS) gained 1.17%. Major Wall Street indexes opened higher on Friday as upbeat retail sales data eased some concerns about an economic slowdown, while Citigroup shares jumped after quarterly results.

However, traders could be pressured overall by second-quarter corporate earnings, which so far have been mostly disappointing.

Several European companies posted lackluster results on Friday, while U.S. bank Wells Fargo reported lower profits, with more money set aside to cover bad debts.

This follows relatively weak numbers from JPMorgan and Morgan Stanley read more.

The Dow Jones Industrial Average (.DJI) rose 1.48%, the S&P 500 (.SPX) gained 1.24% and the Nasdaq Composite (.IXIC) gained 0.97%.

RECESSIONARY CONFIGURATION

Weakening growth forced markets to temper expectations for rate hikes. As Europe faces an energy supply crisis, traders have reduced their bets on the European Central Bank’s policy tightening by the end of the year.

US markets expect rate cuts after March 2023.

“The recessionary angle is getting stronger, backed by data showing things are cracking below the surface,” said Salman Ahmed, global head of macro at Fidelity International.

“We moved quickly from a stagflationary setup to a more recession-dominated setup, and very high inflation adds to concerns that the Fed needs to tighten earlier.”

Treasury yields slipped two to three basis points on the curve while two-year yields held firmly at basis points above the 10-year segment, the curve inversion that often portends a recession.

The yield on 10-year Treasury bills fell 2.7 basis points to 2.932%. The two-year US Treasury yield, which generally moves in line with interest rate expectations, fell 1.7 basis points to 3.128%.

In Europe, German 10-year yields fell 11 basis points to 1.071%, the lowest since May 31. Italy’s borrowing costs fell after Thursday’s 20 basis point jump, although its yield premium to Germany remained near one-month highs .

Comments from Fed officials sent the dollar index down to its highest level in two decades, while the euro rose 0.3% to around $1.00530. The single currency has lost more than 1% this week, having reached parity with the greenback for the first time in 20 years.

The dollar index fell 0.359%, with the euro up 0.48% at $1.0064.

The yen strengthened 0.2% to 138.8, falling from a low of nearly 140 to the dollar, levels last seen in 1998.

Growth concerns have weighed on commodities, with copper prices set for their worst weekly loss in more than two years and US crude recently rising 2.06% to $97.75 a barrel while Brent was at $101.07, up 1.99% on the day.

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Additional reporting by Tom Westbrook in Singapore and Yoruk Bahceli in London Editing by Mark Potter, Chizu Nomiyama, William Maclean

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