Global stocks weaken on China’s growth fears

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Global stocks fell on Wednesday, after weaker-than-expected data from China dampened sentiment as investors awaited minutes from the Federal Reserve̵[ads1]7;s June monetary policy meeting.

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

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

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

“We don’t expect a negative reaction from the markets, because the markets are fully prepared for that [hawkish] tone from the Fed in the minutes”, said Mobeen Tahir, director of macroeconomic research and tactical solutions at WisdomTree Europe.

“Markets are realizing that central banks are more hawkish than necessary. . . . The feeling is that the Fed is in more of an overkill when it comes to inflation, and a dovish pivot is only a matter of time,” he noted.

Traders will also be keeping a close eye on US payrolls data due out on Friday, hoping to gauge the effect high borrowing costs have had on the economy 16 months since the Fed first started raising interest rates.

Meanwhile, Europe’s pan-regional Stoxx 600 lost 0.7 percent, dragged down by declines in basic materials and technology stocks, France’s Cac 40 fell 0.8 percent and the FTSE 100 lost 0.8 percent.

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

The closely watched Caixin Services purchasing managers’ index came in at 53.9 on Wednesday, down from May’s 57.1 and below consensus estimates of 56.2. Measurements above 50 indicate an increase in activity.

“The service sector recovery appears to be slowing, after the initial strong growth immediately after China dropped the zero-Covid policy,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.

“This warrants a measured easing approach, but not a mega-stimulus. Limited fiscal, quasi-fiscal and targeted monetary policy measures are likely to follow,” he noted.

The People’s Bank of China last month cut its benchmark lending rates for the first time in nearly a year as policymakers cautiously extended monetary support in a bid to spur more robust growth.

China’s CSI 300 fell 0.8 percent and Hong Kong’s Hang Seng index lost 1.6 percent after the data release. Japan’s Topix was flat.

On top of that, geopolitical tensions between the US and China raised investor concerns over the technology sector, as Beijing earlier this week imposed new export controls on gallium and germanium products used in semiconductors.

Oil prices extended gains from the previous session, spurred by the announcement that two of the world’s top producers, Saudi Arabia and Russia, planned to cut supply in August.

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

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