- World stocks struggle after biggest drop in index history
- Inflation in the euro zone hits a new record high
- Dollar rises against Aussie, Kiwi
- 10-year Treasury yield remains below 3%
- China’s markets stable in a sea of red in Asia
LONDON, July 1 (Reuters) – The second half of the year started with more volatility for global equities on Friday, as recession concerns surfacing in recent weeks also dragged metals and commodity currencies lower.
MSCI’s World Stock Index (.MIWD00000PUS) had its worst start to the new year for the past six months since its inception in 1990, read more , and an early fall followed by a rebound on both the Europe (.STOXX) and Wall -Street futures pointed to more instability. [.N]
Asia was also lower (.MIAPJ0000PUS), with the sharpest drop in Taiwan, where the growth-sensitive benchmark index (.TWII) fell more than 3% to its lowest since late 2020.
Japan’s Nikkei (.N225) fell 1.75%. The Australian and New Zealand dollars each fell 1% to two-year lows.
Growth-sensitive copper slipped 2.7% and headed for its fourth straight weekly decline, while US Treasuries and German Bunds rallied in bond markets. . EUR/GVD
Dirk Schumacher, Head of European Macro Research at Natixis, said that while the region is not yet in recession, there are fears it could be pushed into one.
Data on Friday showed that euro-zone manufacturing output fell last month for the first time since the first wave of the coronavirus pandemic in 2020, while inflation figures hit another record high. read on read on
“The economic picture is not looking good in Europe and worldwide,” said Schumacher. “There’s a long list of risk factors,” he added, and “the usual safety valve (through lower interest rates or central bank stimulus) is obviously not there now.”
Across the Atlantic, S&P 500 futures were slightly lower again after the US benchmark index ended its worst first half since 1970 on Thursday.
The Fed’s rapid rise in interest rates caused the Treasury market to suffer so badly that Deutsche Bank estimated the half-year’s performance was its worst since 1788 – the year the US Constitution was ratified became. Continue reading
However, it was signs of peaking in inflation and signs of weak growth that began to stabilize bond markets.
Two-year Treasuries are poised for their best week since the markets’ pandemic meltdown in March 2020 as traders now withdraw rate hike bets.
On Friday, the movements became restless again. But the US two-year yield fell almost 14 basis points (bps) to 2.91% this week. The 10-year yield fell about 15 basis points on the week to 2.99% and Bund yields fell to 1.39% from a peak of 1.56% on Monday.
Fed fund futures FEDWATCH, which a few weeks ago priced next year at 4%, now shows that markets expect rate cuts by mid-2023 and a peak below 3.5%.
CHINA BRIGHT
The dollar was back up on Friday after just posting its best quarter since 2016 as US yields rose. Its reputation means that economic uncertainty has supported it even as yields have fallen.
“It’s the demand for safe havens,” said Khoon Goh, head of Asia research at ANZ Bank in Singapore.
Other safe-haven currencies such as the Japanese yen and Swiss franc also attracted investors. The yen rose about 0.2% to 135.40 per dollar and a little further to 141.64 per euro.
But the Australian dollar fell through support at $0.6850 in Asia and was last down 1.4% at $0.6803. The kiwi slipped 1.1% to 0.6178.
A series of business surveys on Friday showed China emerging as an outlier as its economy slowly recovers from COVID-19 lockdowns. Factory activity recovered solidly in June, despite slowdowns in Japan and South Korea and a contraction in Taiwan. Continue reading
Markets are also recovering and although the Shanghai Composite (.SSEC) and blue-chip CSI300 (.CSI300) were down about 0.3% on Friday, they will each post five straight weeks of gains.
Hong Kong’s markets were closed for a public holiday and the city was focused on the visit of Chinese President Xi Jinping. Continue reading
The yuan slipped to 6.7136 per dollar with the broader market. Gold was weighed down by the stronger dollar and US yields, toying with $1,800 an ounce.
Bitcoin, which suffered its biggest quarterly decline on record in the three months to the end of June, fell 3% to $19,375 on Friday.
Additional reporting by Tom Westbrook in Singapore; Edited by Alex Richardson and Kim Coghill
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