Stocks struggle on China data, rate-hike prospects: Markets wrap

Stocks dropped after another round of weak data fueled concerns about the recovery in China and as investors prepared for the latest batch of earnings. The prospect of continued monetary tightening by the Federal Reserve also weighed on sentiment.

Miners and luxury goods companies were among the biggest decliners in Europe after China’s growth for the second quarter missed estimates. Gross domestic product expanded 6.3% from a year prior, weaker than the median forecast of 7.1% from economists surveyed by Bloomberg.

Among individual movers, resources giants Anglo American, Glencore and Rio Tinto dropped as the China weakness weighed on metals prices. In the luxury sector, LVMH and Hermes International slumped. Richemont fell more than 7% after the Cartier owner reported an unexpected drop in sales in the Americas.

Earnings are set to provide crucial direction for markets, with hundreds of companies reporting over the next few weeks. S&P 500 firms are expected to post a 9% drop in profits in the second quarter, making it the worst season since 2020, according to data compiled by Bloomberg Intelligence. In Europe, it may be even worse, with a projected 12% slump.

Contracts for the S&P 500 and Nasdaq 100 were steady. The rally in US stocks hit a wall Friday after a report showed consumer sentiment climbed to an almost two-year high, reinforcing the view that the Fed still has a long way to go to bring inflation down.

Shares in mainland China were the worst performers in Asia on Monday. Japanese markets were shut for a holiday while trading in Hong Kong is canceled due to a storm. The onshore and offshore yuan weakened. The People’s Bank of China earlier extended support for the currency, but kept its medium-term lending facility unchanged Monday despite mounting market calls for more stimulus.

“China’s equity market has been underperforming its global peers this year, which suggests the weak growth prospects and lack of policy stimulus have already been fully priced in,” Marcella Chow, global market strategist at JPMorgan Asset Management, said in a note. At the same time, the weak economic readings signal the urgency in escalating policy support to stabilize expectations, she said.

The dollar was little changed after a gauge of greenback strength snapped a five-day losing streak Friday. The currency’s weekly slide has the index back near levels last seen in April 2022 as some strategists and investors suggest its long bull run is over. Treasury yields ticked lower.

The yen edged higher after Bank of Japan Governor Kazuo Ueda said uncertainty remains high over the US and global economies. He also said there wasn’t much change in Japan’s bond-market functionality from the previous monetary policy meeting in June.

Fed Governor Christopher Waller said last week he expected two more rate increases this year to bring inflation down to the 2% goal, though more good data on prices could obviate the need for the second hike.

Swaps pricing show expectations the Fed is virtually certain to raise its benchmark rate by another 25 basis points when it meets this month, with a roughly one-third chance it will make one more such move before stopping its cycle.

The Fed still has to parse through various data to determine its monetary policy path in the current inflation fight, according to Richard Clarida, global economic advisor at Pacific Investment Management Co.

“This committee will certainly be wary of declaring mission accomplished and victory,” he said on Bloomberg Television. “I don’t expect a particularly hard lean to indicating a hike in September, but they’ll want the options open for sure.”

Elsewhere, oil extended declines as China’s growth disappointed and a major Libyan field resumed output.

Key events this week:

• G-20 finance ministers and central bankers are meeting in India, Monday
• European Central Bank President Christine Lagarde speaks, Monday
• US empire manufacturing, Monday
• US retail sales, industrial production, business inventories, cross-border investment, Tuesday
• Eurozone, UK CPI, Wednesday
• US housing starts, Wednesday
• China loan prime rates, Thursday
• US initial jobless claims, existing home sales, Conf. Board leading index, Thursday
• Japan CPI, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 0.4% as of 8:17 a.m. London time
• S&P 500 futures were little changed
• Nasdaq 100 futures were little changed
• Futures on the Dow Jones Industrial Average fell 0.1%
• The MSCI Asia Pacific Index fell 0.2%
• The MSCI Emerging Markets Index was little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.1239
• The Japanese yen rose 0.1% to 138.62 per dollar
• The offshore yuan fell 0.4% to 7.1837 per dollar
• The British pound was little changed at $1.3087

Cryptocurrencies

• Bitcoin was little changed at $30,280.07
• Ether rose 0.1% to $1,931.44

Bonds

• The yield on 10-year Treasuries declined one basis point to 3.82%
• Germany’s 10-year yield was little changed at 2.51%
• Britain’s 10-year yield was little changed at 4.45%

Commodities

• Brent crude fell 1.2% to $78.95 a barrel
• Spot gold fell 0.2% to $1 952.07 an ounce