US equity futures stumbled, and European stocks remained uncertain as fears surrounding China’s economic rebound intensified, while investors awaited key American price data later in the week and Global markets volatile as concerns china’s economic recovery and inflation worries
The S&P and Nasdaq Drop
The S&P 500 and Nasdaq 100 futures dropped approximately 0.3% and 0.4% respectively, following a decline in American equities on Friday after wage data indicated persistent inflationary pressures.
The Stoxx Europe 600 index experienced fluctuations following its largest weekly decline since mid-March. The mining sector bore the brunt of the downturn, as iron ore and copper prices slumped. Rio Tinto Group suffered a decline of over 1% after its chairman cautioned against challenges from China concerning raw materials. Conversely, Bayer AG saw a surge of up to 3.2% after reports suggested the pharmaceutical giant is considering spinning off its agricultural chemicals business.
Amid concerns that high-interest rates may strain economies, equities have experienced a sluggish start to the second half of the year. US Treasury Secretary Janet Yellen acknowledged the possibility of a US recession over the weekend, emphasizing the persistent issue of high inflation.
A shift in focus needed
Nicolo Bocchin, global head of fixed income at Azimut Group, remarked, “Everyone is looking at inflation or has been looking at inflation for a long time. Now it’s time to look at growth,” highlighting the need for a shift in focus.
Market participants will closely analyze US inflation figures to gain insights into the Federal Reserve’s expected policy trajectory and the mounting risk of a recession. Additionally, Tuesday’s UK jobs data will play a pivotal role in determining the Bank of England’s policy decision in August.
The 10-year Treasury yield remained relatively unchanged around 4%, while the two-year yield dropped by approximately three basis points to 4.92%. The dollar gauge remained steady.
Asia’s Equity Benchmark Decline
Across Asia, equity benchmarks experienced a fourth consecutive day of decline, on track for their lowest close in over a month. Shares in Hong Kong and mainland China initially rallied, buoyed by optimism that Beijing’s regulatory crackdown on Chinese tech firms was nearing its end. However, gains were pared as Chinese data revealed further declines in factory-gate prices and a slowdown in core inflation. Consequently, the offshore yuan turned negative after the release of the data.
Zhaopeng Xing, senior China strategist at Australia & New Zealand Banking Group Ltd, noted, “It is clear that China is facing excess supply now… Demand side policies will be in need,” signaling expectations for fiscal stimulus ahead of China’s July Politburo meeting.
The U.S. Jobs Data
Last week’s US jobs data dampened speculations of the Federal Reserve leaving interest rates unchanged this month. While payroll figures fell short of estimates, they indicated that wage inflation continues to pose a threat to the Fed’s battle against inflationary pressures.
Market participants will closely monitor this week’s US consumer prices data. Bloomberg economists anticipate a drop to 3.1% in the headline number, but this is unlikely to deter the Fed from considering a rate hike at its upcoming meeting.
Ed Yardeni, president of his namesake research firm, stated that downside surprises in inflation indicators could fuel market optimism and potentially propel the S&P 500 above current levels. Conversely, higher-than-expected inflation readings may heighten concerns that the Fed will need to tighten monetary policy to mitigate inflation, potentially leading to a recession.
Meanwhile, oil prices experienced a minor dip on Monday following two consecutive weeks of gains, while gold remained relatively stable.
