Stocks Retreat on Dismal Data in China and Europe: Markets Wrap

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(Bloomberg) — European stocks retreated after a fresh set of downbeat economic data from the euro area and China, while the single currency sank to a nearly three-month low against the dollar.

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The Stoxx 600 dropped as much as 0.8%, edging lower for the fifth day, while US equity futures also retreated. The dollar strengthened as much as 0.5% against its Group-of-10 peers, touching the highest level since March. Yields on US Treasuries climbed following a US holiday on Monday.

China’s services sector saw the slowest growth this year in August, an industry survey showed, adding to evidence the economic recovery is losing traction and damping earlier optimism over government stimulus. In Europe, the composite purchasing managers’ index undershot expectations, posting a contraction for a third straight month.

“There is real concern for the euro-area picture, with survey data suggesting the economy is sliding into recession,” said Sarah Hewin, head of Europe and Americas research at Standard Chartered. “It raises questions over how aggressive the ECB can be going forward.”

The European Central Bank holds its interest-rate meeting next week.

The disappointing Chinese PMI figures weighed heavily on European stock sectors exposed to the world’s No. 2 economy, with luxury and consumer names such as LVMH and Kering as well as sportswear maker Adidas losing more than 2%.

The data curbed the positive sentiment generated Monday by news of bumper new-home sales on the weekend in two major Chinese cities that appeared to hint authorities’ stimulus steps were taking effect. Earlier in the day, the MSCI Asia Pacific Index headed for its first drop in seven days and the offshore traded yuan slid.

In a rare spot of good news, Country Garden Holdings Co. said it paid coupons on two dollar bonds within their grace periods. The troubled developer that has come to symbolize China’s property woes is said to be proposing to extend principal payments for eight yuan bonds.

Standard Chartered’s Hewin expects more measures from Beijing to boost credit growth. “There has been a huge number of supportive measures and our view is there is scope on the fiscal side and room for more rate cuts,” she added.

The Chinese data also hit the Australian dollar, which fell as much as 0.7% against the greenback. Already the worst-performing developed market currency this quarter, the Aussie was also undermined by signs the central bank won’t tighten rates further. The bank stood pat on Tuesday as expected.

The US dollar benefited from the woes elsewhere. While many economists say the Federal Reserve has come to the end of its 18-month long policy-tightening campaign, a relatively robust economy means interest-rate cuts may not come any time soon. Goldman Sachs Group Inc. now sees just a 15% probability of a US recession in the coming year, down five percentage points from their previous estimate.

“The disappointing PMI data out in China and Europe so far have dragged the market to backing the dollar,” said Roberto Cobo Garcia, head of G10 FX strategy at Banco Bilbao Vizcaya Argentaria SA. “Higher Treasury yields are also backing the move after yesterday’s holiday in the US.”

Elsewhere, Brent crude slipped for the first day in six, trading down 0.9% at $88.22 per barrel and moving away from the nine-month highs hit recently on expectations of further supply cuts from the OPEC+ producers’ group.

Key events this week:

  • US factory orders, Tuesday

  • ECB President Christine Lagarde chairs panel focused on central banks and international sanctions at ECB Legal Conference, Tuesday

  • Australia GDP, Wednesday

  • Eurozone retail sales, Wednesday

  • Germany factory orders, Wednesday

  • US trade, Wednesday

  • Canada rate decision, Wednesday

  • Bank of England Governor Andrew Bailey testifies to the UK parliament’s Treasury Select Committee, Wednesday

  • Federal Reserve issues Beige Book economic survey, Wednesday

  • Boston Fed President Susan Collins speaks on the economy at New England Council, Wednesday

  • China trade, forex reserves, Thursday

  • Eurozone GDP, Thursday

  • US initial jobless claims, Thursday

  • Bank of Canada Governor Tiff Macklem to speak on the Economic Progress Report, Thursday

  • New York Fed President John Williams participates in moderated discussion at the Bloomberg Market Forum, Thursday

  • Atlanta Fed President Raphael Bostic speaks on economic outlook at Broward College, Thursday

  • Japan GDP, Friday

  • France industrial production, Friday

  • Germany CPI, Friday

Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 fell 0.3% as of 10:28 a.m. London time

  • S&P 500 futures fell 0.2%

  • Nasdaq 100 futures fell 0.3%

  • Futures on the Dow Jones Industrial Average were little changed

  • The MSCI Asia Pacific Index fell 0.8%

  • The MSCI Emerging Markets Index fell 0.9%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.5%

  • The euro fell 0.4% to $1.0750

  • The Japanese yen fell 0.4% to 147.08 per dollar

  • The offshore yuan fell 0.5% to 7.3087 per dollar

  • The British pound fell 0.6% to $1.2544

Cryptocurrencies

  • Bitcoin fell 0.5% to $25,693

  • Ether fell 0.2% to $1,624.67

Bonds

  • The yield on 10-year Treasuries advanced four basis points to 4.21%

  • Germany’s 10-year yield advanced two basis points to 2.60%

  • Britain’s 10-year yield advanced one basis point to 4.47%

Commodities

  • Brent crude fell 0.6% to $88.43 a barrel

  • Spot gold fell 0.6% to $1,931.20 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Georgina McKay and Tassia Sipahutar.

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©2023 Bloomberg L.P.

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