Stocks Suffer As China Cuts Interest Rates, Sending Oil Prices Tumbling.

Despite statistics pointing to sluggish growth in the world’s second-largest economy and oil prices falling by about 2%, investors struggled to advance global markets on Monday as they processed news of an unexpected decrease in Chinese interest rates.

The outlook was also negatively impacted by weaker U.S. stock index futures and a stable currency, which hurt gold.

The MSCI all country index (.MIWD00000PUS), whose drop for the year had been reduced to approximately 13% by a month-long rebound, was scarcely firmer.
Data indicated the economy unexpectedly slowed down in July, with manufacturing and retail activity being constrained by Beijing’s zero-COVID policy and a real estate crisis. In response, China’s central bank lowered key lending rates to boost demand.
Investors have been trying to predict how far higher rates will go when the US and European central banks meet next month.

Wall Street recorded gains for a fourth consecutive week as of Friday thanks to expectations for lower rate increases and indications that American inflation may have peaked.
The Nikkei (.N225) share average in Tokyo increased to its highest level in more than seven months thanks to Wall Street advances and stable GDP data for Japan.

“China, in my opinion, has a unique circumstance compared to the rest of the globe. Because of their zero COVID policy, they have a self-imposed recession “Patrick Armstrong, chief investment officer at the Plurimi Group, said.

“If there is another leg down in the markets, I do believe the Fed will be the driving force. I believe that quantitative tightening will start in earnest in September and that it will drain market liquidity “said Armstrong.
The markets continue to suggest that there is a 50% chance the Fed will raise rates by 75 basis points in September and to a range of 3.50–3.75% by the end of the year.

The Fed will release the minutes from its most recent rate-setting meeting on Wednesday, but investor hopes that they will show the central bank starting to change its stance on rate rises may be crushed.

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Armstrong disagreed, saying “I don’t think (Fed Chair) Powell would say that, and I don’t think the minutes will show that.”

The STOXX share index of 600 elite firms in Europe increased by 0.13% to 441.43 points, but it is still down by around 10% for the year.
Following advances the previous week, the S&P 500 and Nasdaq futures were both down about 0.5%.

Target (TGT.N) and Walmart (WMT.N) earnings will be closely examined for indications of waning customer demand.

Chinese blue chips (.CSI300) continued to decline by 0.13% despite the country’s interest rates being slashed, while the yuan and bond yields also decreased.
A delegation of American legislators visiting Taiwan for two days is nevertheless fraught with geopolitical risk.

With the yield curve still firmly inverted, the bond market seems to be skeptical that the Fed can engineer a smooth landing. With a two-year yield of 3.27%, it is significantly higher than the 10-year yield, which was 2.86% at the time.

The U.S. dollar has been supported by these yields, despite falling 0.8% last week against a basket of currencies as risk sentiment increased.

However, the dollar found its footing on Monday as the euro declined 0.2% to $1.02345 against the dollar after rising 0.8% the previous week. The dollar held steady at 133.51 yen after declining 1% the previous week.

According to Capital Economics senior economist Jonas Goltermann, “our belief remains that the dollar rally will continue sooner rather than later.”

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Gold fell 0.8% to $1,786, giving up almost all of its 1% gains from the previous week.

As concerns about the world’s fuel consumption increased as a result of China’s poor results, oil prices decreased.

Saudi Aramco’s CEO said the company was prepared to increase output once many offshore sites in the U.S. Gulf of Mexico resume production following a brief outage last week. Saudi Aramco is the top exporter in the world.

While U.S. crude slid 1.9% to $90.34 per barrel, Brent dropped 1.8% to $96.35.