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Stocks struggle as China’s interest rate cut pushes oil prices lower

Stocks struggle as China's interest rate cut pushes oil prices lower
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FILE PHOTO – People walk past an electronic screen showing Japan’s Nikkei stock price index at a conference hall in Tokyo, Japan, June 14, 2022. REUTERS/Issei Kato

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  • https://tmsnrt.rs/2zpUAr4
  • Nikkei rises, S&P 500 futures fall
  • PBOC cuts key rates, China data badly misses forecasts
  • Eyes on Fed minutes, earnings

LONDON, Aug 15 (Reuters) – Global shares struggled to move ahead on Monday as data showed weakening growth in the world’s second-largest economy sent oil prices down nearly 2% as investors digested news of an unexpected cut in Chinese interest rates.

Weak US stock index futures also weighed on sentiment, while a steady dollar weighed on gold.

MSCI All Country Index (.MIWD00000PUS) was almost firmer, with a one-month advance narrowing the index’s year-to-date decline 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 squeezed by Beijing’s zero-covid-19 policy and a property crisis. read more

Until now, investors have been grappling with how much central banks in the US and Europe will raise interest rates when they meet next month.

Hopes of a smaller rate hike on signs that U.S. inflation may be peaking helped Wall Street post a fourth weekly gain through Friday.

Gains on Wall Street and solid growth figures for Japan helped the Nikkei (.N225) The Tokyo share average rose to its highest level in more than seven months.

“I think China is a different situation than the rest of the world. They’re in a self-induced recession from a zero COVID policy,” said Patrick Armstrong, chief investment officer at investment house Plurimi Group. .

“I think if there is another pullback in the markets, it will be led by the Fed. I think quantitative tightening will start in earnest in September and that will pull liquidity out of the market,” Armstrong said.

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

The Fed will publish the minutes of its emergency meeting on Wednesday, but investors’ hopes for a signal that the central bank is beginning to turn around on rate hikes may be dashed.

“I don’t think (Fed Chairman) Powell will say that, I think the minutes will show that,” Armstrong said.

The STOXX stock index of 600 leading European companies rose 0.13% to 441.43 points, still down nearly 10% for the year.

Fed rate futures and stocks

US FUTURES EASY

S&P 500 futures and Nasdaq futures were down about 0.5% after last week’s gains.

Earnings from major retailers, including Walmart (WMT.N) and Target (TGT.N)will be scrutinized for signs of flagging consumer demand.

Chinese interest rate cuts have not stopped Chinese blue chips (.CSI300) While shedding 0.13%, yuan and bond yields also applied. read more

Geopolitical stakes remain high with a delegation of US lawmakers on a two-day visit to Taiwan. read more

The bond market is still skeptical that the Fed can produce a soft landing with the yield curve remaining deeply inverted. The two-year yield of 3.27% is well above the price of the 10-year note, which is trading at 2.86%.

Those gains supported the US dollar despite a 0.8% loss against a basket of currencies last week as risk sentiment improved.

But the dollar strengthened slightly on Monday, with the euro falling 0.2% against the greenback to $1.02345 after gaining 0.8% last week. Against the yen, the dollar was steady at 133.51 after losing 1% last week.

“In our view, we believe the dollar rally will end before long,” said Jonas Goltermann, chief economist at Capital Economics.

Gold fell 0.8% to $1,786, giving up almost all of last week’s 1% gain.

Oil prices fell as disappointing data from China raised concerns about global fuel demand.

The head of Saudi Aramco, the world’s biggest exporter, said last week that it was ready to raise output as production resumed at several offshore platforms in the US Gulf of Mexico after a brief outage.

Brent fell 1.8% to $96.35, while US crude fell 1.9% to $90.34.

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Reporting by Wayne Cole; Edited by Sam Holmes, Raju Gopalakrishnan and Ed Osmond

Our standards: Thomson Reuters Trust Principles.

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