As Argentina devalues and Russia hikes rates, the world watches China’s shaky economic pulse
15 August 2023 - 13:32
by Agency Staff
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London — Global stocks were stuck near five-week lows on Tuesday as rising government bond yields unnerved investors, while rate cuts from China and disappointing data underscored the economic malaise gripping the world’s second-biggest economy.
Emerging markets remained in focus a day after Argentina devalued its currency by nearly 18%, while Russia’s central bank on Tuesday raised interest rates by 350 basis points (bps) at an extraordinary meeting after a fresh slide in the rouble.
US 10-year treasury yields, meanwhile, rose to a nine-month high at about 4.22%, while Germany’s benchmark 10-year bond yield rose to its highest since March as a sell-off in bonds, driven in part by resilient US economic growth, deepened.
European stocks fell almost 0.8%, US stock futures pointed to a weak open on Wall Street, while Asian shares fell 0.4%.
This all left MSCI’s world equity index heading back towards five-week lows touched on Monday.
“We have seen resilient markets, but the rise in bond yields and how that gets resolved will be important in the second half of the year,” said Tim Graf, head of EMEA macro strategy at State Street Global Advisors.
China cuts, Russia hikes
Cuts to China’s one-year loans to financial institutions, at 15bps, were the largest since the outset of the Covid-19 pandemic. Industrial output and retail sales growth both slowed from a month earlier to a year-on-year pace of 3.7% and 2.5% respectively, missing expectations.
The yuan dropped to its lowest in 9½ months, and sources told Reuters that China’s major state-owned banks stepped into the spot market to steady the currency. It was last trading at about 7.2834 per dollar, having been as low as 7.2899.
“The rate cut had been coming, but it was a bit sooner than expected and the data was significantly weaker than expected,” said Chris Scicluna, head of research at Daiwa Capital Markets. “Globally, markets are right to be concerned about where China growth is going in the current quarters.”
MSCI’s broadest index of Asia-Pacific shares outside Japan was not far from a one-month low hit on Monday of 506.3 as worry about China’s frozen property sector swept across regional markets.
Property investment, sales and fundraising extended their slide in July, data on Tuesday showed. New construction starts by floor area are down nearly 25% year-on-year and highlight how there is neither the appetite nor funds to build.
In Britain, sterling rose and two-year British government bond yields, which are sensitive to speculation about interest-rate changes, hit their highest level in a month.
That followed data showing basic wages in Britain hit a new record growth rate, adding to worries for the Bank of England (BOE) about long-term inflation pressures even after 14 back-to-back increases in interest rates.
Globally, markets are right to be concerned about where China growth is going in the current quarters.
Chris Scicluna, head of research, Daiwa Capital Markets
“We expect another hike in September and another one after that,” said Scicluna.
China’s weak data overshadowed a surprise in Japan, where tourism and car exports sent annualised growth surging to 6% in the second quarter, well above the 3.1% analysts had expected. That lifted the Nikkei by 0.6%.
The yen showed little reaction and hit a nine-month low of about 145.86 to the dollar, capped as controlled Japanese yields leave a wide gap on rising US yields.
The euro was up a fifth of a percent at $1.0925.
In Australia, wages growth came in steady for the last quarter, just below expectations, and added to the case for a pause in rate hikes for the time being.
Russia’s central bank meanwhile hiked its key interest rate by 350bps to 12%, an emergency move to try to halt the rouble’s recent slide after a public call from the Kremlin for tighter monetary policy.
The rouble pared gains after the decision to stand 0.3% weaker at 98.00, but still significantly above lows near 102 on Monday, which had not been hit since the early weeks after Russia invaded Ukraine.
“Today’s rate hike will only temporarily slow the bleeding,” said Liam Peach, senior emerging markets economist at Capital Economics in London.
Brent crude futures were 40c weaker at $85.81 per barrel.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Global stocks slide on China’s slump
As Argentina devalues and Russia hikes rates, the world watches China’s shaky economic pulse
London — Global stocks were stuck near five-week lows on Tuesday as rising government bond yields unnerved investors, while rate cuts from China and disappointing data underscored the economic malaise gripping the world’s second-biggest economy.
Emerging markets remained in focus a day after Argentina devalued its currency by nearly 18%, while Russia’s central bank on Tuesday raised interest rates by 350 basis points (bps) at an extraordinary meeting after a fresh slide in the rouble.
US 10-year treasury yields, meanwhile, rose to a nine-month high at about 4.22%, while Germany’s benchmark 10-year bond yield rose to its highest since March as a sell-off in bonds, driven in part by resilient US economic growth, deepened.
European stocks fell almost 0.8%, US stock futures pointed to a weak open on Wall Street, while Asian shares fell 0.4%.
This all left MSCI’s world equity index heading back towards five-week lows touched on Monday.
“We have seen resilient markets, but the rise in bond yields and how that gets resolved will be important in the second half of the year,” said Tim Graf, head of EMEA macro strategy at State Street Global Advisors.
China cuts, Russia hikes
Cuts to China’s one-year loans to financial institutions, at 15bps, were the largest since the outset of the Covid-19 pandemic. Industrial output and retail sales growth both slowed from a month earlier to a year-on-year pace of 3.7% and 2.5% respectively, missing expectations.
The yuan dropped to its lowest in 9½ months, and sources told Reuters that China’s major state-owned banks stepped into the spot market to steady the currency. It was last trading at about 7.2834 per dollar, having been as low as 7.2899.
“The rate cut had been coming, but it was a bit sooner than expected and the data was significantly weaker than expected,” said Chris Scicluna, head of research at Daiwa Capital Markets. “Globally, markets are right to be concerned about where China growth is going in the current quarters.”
MSCI’s broadest index of Asia-Pacific shares outside Japan was not far from a one-month low hit on Monday of 506.3 as worry about China’s frozen property sector swept across regional markets.
Property investment, sales and fundraising extended their slide in July, data on Tuesday showed. New construction starts by floor area are down nearly 25% year-on-year and highlight how there is neither the appetite nor funds to build.
In Britain, sterling rose and two-year British government bond yields, which are sensitive to speculation about interest-rate changes, hit their highest level in a month.
That followed data showing basic wages in Britain hit a new record growth rate, adding to worries for the Bank of England (BOE) about long-term inflation pressures even after 14 back-to-back increases in interest rates.
“We expect another hike in September and another one after that,” said Scicluna.
China’s weak data overshadowed a surprise in Japan, where tourism and car exports sent annualised growth surging to 6% in the second quarter, well above the 3.1% analysts had expected. That lifted the Nikkei by 0.6%.
The yen showed little reaction and hit a nine-month low of about 145.86 to the dollar, capped as controlled Japanese yields leave a wide gap on rising US yields.
The euro was up a fifth of a percent at $1.0925.
In Australia, wages growth came in steady for the last quarter, just below expectations, and added to the case for a pause in rate hikes for the time being.
Russia’s central bank meanwhile hiked its key interest rate by 350bps to 12%, an emergency move to try to halt the rouble’s recent slide after a public call from the Kremlin for tighter monetary policy.
The rouble pared gains after the decision to stand 0.3% weaker at 98.00, but still significantly above lows near 102 on Monday, which had not been hit since the early weeks after Russia invaded Ukraine.
“Today’s rate hike will only temporarily slow the bleeding,” said Liam Peach, senior emerging markets economist at Capital Economics in London.
Brent crude futures were 40c weaker at $85.81 per barrel.
Reuters
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