Shares fall after weak overseas data; US-China trade tensions in focus


By Sinéad Carew and Tom Wilson

NEW YORK/LONDON (Reuters) – MSCI’s global equities index lost ground on Wednesday after weaker-than-expected overseas data and as investors monitored a heating up of American-Chinese trade tensions while they awaited upcoming U.S. economic data and second-quarter earnings.

Investors shrugged off U.S. Federal Reserve meeting minutes released on Wednesday that showed a Fed united in its June meeting decision to hold interest rates steady to buy time to assess whether further hikes would be needed. Minutes also showed most members expecting more policy tightening eventually.

“If we continue to see a cooling of inflation, there may not be any further rate hikes, but nothing to that end was disclosed in the Fed minutes,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles. “We’ll have a much better sense after we get another major data point on Friday with the jobs report and the inflation data next week.”

Putting a damper on equities overseas was the release earlier of a survey showing China’s services sector – which had rebounded since the lifting of COVID-19 lockdowns – expanding in June at the softest pace in five months, adding to signs of a faltering recovery in the world’s second-biggest economy.

A U.S. Commerce Department spokesperson said on Wednesday that the United States “firmly” opposes export controls announced by China on Monday for gallium and germanium, and that Washington will consult its partners and allies. Companies were racing to secure supplies ahead of a Aug. 1 deadline after China’s abrupt decision, to restrict exports of two metals widely used in semiconductors and electric vehicles.

“If you look at the global level, all the things that came out (from China and Europe) show you that growth is still slowing and you have the geopolitical backdrop between the U.S. and China that’s going to be a bit of a headache,” said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions.

Longer-dated U.S. Treasury yields were little changed after the Fed minutes. Yields gained modestly after a softer-than-expected reading on U.S.-made goods and rose steadily into afternoon trading, with little reaction to the Fed minutes.

Investors were cautious after returning from Tuesday’s U.S. Independence Day holiday

While the Fed is widely expected to hike rates again in July, investors will look to upcoming data such as inflation readings and the second-quarter corporate earnings season for clues on the Fed’s plans for rates later this year.

The Dow Jones Industrial Average fell 106.59 points, or 0.31%, to 34,311.88, the S&P 500 lost 4.83 points, or 0.11%, to 4,450.76 and the Nasdaq Composite dropped 8.11 points, or 0.06%, to 13,808.66.

The pan-European STOXX 600 index had closed down 0.73% and MSCI’s international gauge of stocks shed 0.40% and was on track to snap a six-session winning streak.

Emerging market stocks lost 0.80%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.93% lower, while Japan’s Nikkei lost 0.25%.

Traders are betting on an 88.7% chance the Fed will hike rates by a quarter percentage point in July after pausing last month, but have priced in only a 17.7% chance for another hike in September, according to CME Group’s FedWatch tool.

The U.S. dollar weakened slightly after the Fed minutes before then gaining ground to hit its session high.

The dollar index rose 0.281%, with the euro down 0.23% to $1.0852.

The Japanese yen weakened 0.16% versus the greenback at 144.68 per dollar, while Sterling was last trading at $1.2695, down 0.13% on the day.

Benchmark 10-year notes were up 8.7 basis points to 3.945%, from 3.858% late on Monday. The 30-year bond was last up 6.9 basis points to yield 3.9462%, from 3.877%. The 2-year note was last was up 1.3 basis points to yield 4.9529%, from 4.94%.

U.S. crude oil gained ground, narrowing the price gap with global benchmark Brent in a response after the July Fourth holiday to supply cuts announced on Monday by top oil exporters Saudi Arabia and Russia.

And market participants were awaiting demand data from the weekend, which tends to mark the peak U.S. travel season.

U.S. crude settled up 2.87% at $71.79 per barrel and Brent settled at $76.65, up 0.52% on the day.

(Reporting by Sinéad Carew in New York, Tom Wilson in London and Stella Qiu in Sydney; Additional reporting by Dhara Ranasinghe; Editing by Sam Holmes, Helen Popper, Will Dunham and Christina Fincher)

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