Global stocks weaken on China growth fears

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Global stocks fell on Wednesday, after weaker than expected data from China damped sentiment while investors awaited for the minutes from the Federal Reserve’s June monetary policy meeting.

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

The declines came as investors turned their attention to the release later on Wednesday of the minutes from the Fed’s last meeting, in hopes to gauge policymaker’s outlook on future interest rates.

The US central bank opted to keep the federal funds rate steady in June, at a target range between 5 per cent and 5.25 per cent, but signalled that its tightening campaign will not end until inflation returns back to its 2 per cent target.

“We don’t expect an adverse reaction from markets, because 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 realise that central banks are being more hawkish than necessary . . . The sentiment is that the Fed is in a more of overkill when it comes to inflation, and a dovish pivot is only a matter of time,” he noted.

Traders also will be closely watching the US payroll data coming out on Friday, in hopes to gauge the impact high borrowing costs have had on the economy 16 months since the Fed first started raising rates.

Meanwhile, Europe’s region-wide Stoxx 600 lost 0.7 per cent, dragged down by declines in basic materials and technology stocks, France’s Cac 40 slipped 0.8 per cent and the FTSE 100 lost 0.8 per cent.

The indices slipped after service sector data from China fell below expectations, raising concerns that the world’s second-largest economy was struggling to recover after years of severe pandemic restrictions.

The closely watched Caixin services purchasing managers’ index came in at 53.9 on Wednesday, down from 57.1 for May and below consensus estimates of 56.2. Readings above 50 indicate an expansion in activity.

“The services sector recovery appears to be slowing, after the initial strong burst of growth immediately after China dropped 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 almost a year, as policymakers extended cautious monetary support in an effort to spur more robust growth.

China’s CSI 300 dropped 0.8 per cent and Hong Kong’s Hang Seng index lost 1.6 per cent following the data release. Japan’s Topix was flat.

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

Oil prices extended their rise 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 crude, the international benchmark, added 0.8 per cent to $76.82 per barrel. West Texas Intermediate, which is based on US oil prices, rose as much as 3.24 per cent to $72.04.