Stocks Fall as Investors Are Alarmed by China’s Slowing Economy

Stocks Fall as Investors Are Alarmed by China's Slowing Economy
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SINGAPORE, July 15 (Trouve 360 News)  – On Friday, Asian Stocks plummeted to a two-year low and were on track for a weekly loss, while the dollar was poised to rise for the third week in a row as a new round of rate hikes internationally heightened concerns about the future for global economic growth.

Although bets on a 100 basis point rise from the US Federal Reserve later this month were reduced somewhat after Fed officials ruled it out, bond markets are still pricing in high hikes to slam the brakes on production.

Another major source of concern is the Chinese economy. It shrank dramatically in the second quarter, according to statistics published on Friday, and investors were alarmed by purchasers’ threats to stop making mortgage payments.

The MSCI Asia-Pacific Ex-Japan Index (.MIAPJ0000PUS) has reached a two-year low and is now down 0.6 percent. Property stocks in Hong Kong (.HSMPI) plummeted 3%, while mainland banks (.CSI000951) declined 1%, while stimulus optimism saved the rest of the market from falling more.

“The underlying June figures reflect a reasonably solid rebound,” Woei Chen Ho, an economist at UOB in Singapore, said.

“However, in terms of the second half…it seems that additional concerns are looming,” she continued, naming the property market as the most serious issue.

China’s bleak outlook dragged on commodities prices, sending Dalian iron ore down 9.1 percent and Australia’s mining index (.AXMM) to a nine-month low, which was exacerbated by Rio Tinto’s warning of labor shortages.

The Nikkei (.N225) in Japan was an anomaly, jumping 0.6 percent in weak activity ahead of a long weekend. Fast Retailing, the parent company of Uniqlo, rose 8% after improving its profit projection, although its foreign profits were hampered by the falling yen.

Two Fed officials have also poured cold water on expectations of a 100-bp rate increase later in July, against a background of strong rises in Canada, New Zealand, South Korea, and unexpected tightening in Singapore and the Philippines.

Futures suggest a 30% likelihood of a 100 basis point raise, with the benchmark US interest rate hitting about 3.6 percent by March next year before falling down to 3 percent by late 2023.

In Asia, S&P 500 futures jumped 0.3 percent, while European futures rose 1%.

The next keenly anticipated data point on Friday is retail sales in the United States.

Weakness will alarm investors who believe that this week’s high inflation number, as well as following Thursday data showing a big jump in producer prices, indicate to the Fed unleashing aggressive rate hikes on a slowing economy.

Short-term U.S. Treasuries stayed solid in Asia, but the two-year yield, at 3.1159 percent, is nearly 17 basis points higher than the benchmark 10-year yield, indicating an uncommon inversion of the yield curve, which generally precedes a recession.

“I believe that inversion has a long way to go because we haven’t fully priced in that recession yet,” said ING analyst Rob Carnell.

The US dollar reigns supreme in currency markets. The euro dropped to $0.9952 overnight and is down 1.5 percent for the week. It was last stable at $1.0022. The yen is rapidly approaching 140 per dollar, having just purchased 139.02.

“Not only has the greenback been supported by an almost continuous ratcheting up of Fed hawkishness… but the US dollar is also receiving support from safe-haven flows,” said Jane Foley, senior currency strategist at Rabobank in London.

Brent oil futures were unchanged at $99.96 per barrel, while gold was at $1,708 per ounce, slightly above a one-year low overnight.

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