September 28, 2022

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Stocks dip ahead of US inflation data, earnings hurdles

Stocks struggle as China rate cut sends oil prices lower

FILE PHOTO – People pass an electronic screen displaying Japan’s Nikkei stock price index inside a conference hall in Tokyo, Japan, June 14, 2022. REUTERS/Issa Kato

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  • https://tmsnrt.rs/2zpUAr4
  • Nikkei rises, S&P 500 dips
  • People’s Bank of China (PBOC) cuts key interest rates, China data badly misses expectations
  • Eyes on Fed Minutes, Earnings

LONDON (Reuters) – Global stocks struggled to rally on Monday as investors digested news of an unexpected Chinese interest rate cut as data pointed to faltering growth in the world’s second-largest economy, sending oil prices down nearly 2 percent.

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

MSCI All Countries Index (.MIWD00000PUS) It was barely firmer, as a month’s advance trimmed the benchmark’s decline for the year to about 13%.

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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 slashing due to Beijing’s coronavirus-free policy and real estate crisis. Read more

So far, investors are still wrestling with the extent to which central banks in the United States and Europe will increase interest rates when they meet next month.

Hopes for a rate hike helped at least amid signs that US inflation had peaked on Wall Street for the fourth consecutive week of gains by Friday.

Gains on Wall Street and Japan’s steady growth numbers helped the Nikkei (.N225) The average share in Tokyo jumps to its highest level in more than seven months.

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

“I think the Fed will be driven if there is another drop in the markets,” Armstrong said. “I think quantitative tightening will start in earnest in September and that will take liquidity out of the market.”

Markets are still indicating a 50% chance that the Fed will raise 75 basis points in September and that interest rates will rise to around 3.50-3.75% by the end of the year.

The Federal Reserve will publish the minutes of last Wednesday’s rate-setting meeting, but investors’ hopes of showing the central bank has begun focusing on raising rates could fade.

“I don’t think (Federal Reserve Chairman) Powell would say that, I don’t think the minutes would indicate that,” Armstrong said.

In Europe, the STOXX Index of 600 leading companies rose 0.13% at 441.43 points, still down about 10% for the year.

Fed Stock Futures

Ease of US futures

Futures for the S&P 500 and Nasdaq are down about 0.5% after last week’s gains.

Earnings from major retailers, including Walmart (WMT.N) And the goal (TGT.N)will be checked for signs of weak consumer demand.

China’s interest rate cut fails to stop China’s blue-chip stocks (.CSI300) It slipped 0.13%, while yuan and bond yields also fell. Read more

Geopolitical stakes remain high with a delegation of US lawmakers in Taiwan on a two-day trip. Read more

The bond market still appears to doubt the Fed’s ability to make a soft landing, with the yield curve remaining deeply inverted. The two-year yield at 3.27% is much higher than the 10-year bond yield which traded at 2.86%.

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These returns supported the US dollar, although it fell 0.8% against a basket of currencies last week as risk sentiment improved.

But on Monday, the dollar regained some stability, with the euro down 0.2% against the dollar at $1.02345 after jumping 0.8% last week. Against the yen, the dollar settled at 133.51 after losing 1% last week.

“We still feel that the dollar’s rally will resume before too long,” said Jonas Goltermann, chief economist at Capital Economics.

Gold fell 0.8% to $1786, losing almost all of its 1% gains last week.

Oil prices fell as disappointing Chinese data added to concerns about global fuel demand.

The head of Saudi Aramco, the world’s largest exporter, said it was ready to ramp up production while resuming production at several US offshore platforms in the Gulf of Mexico after a short break last week.

Brent crude fell 1.8 percent to $96.35, while US crude fell 1.9 percent to $90.34 a barrel.

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Reporting from Wayne Cole. Editing by Sam Holmes, Raju Gopalakrishnan and Ed Osmond

Our criteria: Thomson Reuters Trust Principles.