European stocks and US stock futures started the month on a weak note, as disappointing Chinese factory data upset the economic outlook.
Europe’s regional StockX 600 stock index rose 0.2 percent on Monday, following a rebound for global equities that took a beating in July, as markets responded to the economic slowdown on speculation that higher rates of inflation would ease .
The index for European banking stocks rose 1.7 per cent on quarterly earnings from lender HSBC, beating analysts’ forecasts.
Futures trading suggested Wall Street’s blue-chip S&P 500 equity index would fall 0.3 per cent at New York’s opening bell.
Official data released over the weekend showed Chinese factory activity unexpectedly contracted last month after the new coronavirus flared up and weakened demand amid tensions in the country’s property market. The Purchasing Managers’ Index for the manufacturing sector produced a reading of 49, down from 50.2 in June and below the 50 range that separates expansion from contraction.
“Both domestic demand and external demand for manufacturing were weak,” ING Greater China economist Iris Pang said in a note to clients.
“Unfinished real estate projects may be at least part of the reason,” Pang said, after indebted developers suspended construction of millions of apartments. Pang also cited the “risk of transition from financially unsound property developers to their downstream and upstream industries”.
Oil benchmark Brent crude fell 1.5 per cent to $102.41 a barrel.
Later on Monday, the closely watched ISM manufacturing PMI is expected to show a slowing pace of growth in US activity, with economists polled by Reuters forecasting a reading of 52 in July from 53 last month.
However, investors remain uncertain about whether increased recession risks will weigh on corporate earnings to dent stock prices or fuel expectations of a peak in global inflation, prompting central banks to raise future rates. But be careful.
Antonio Cavarrero, head of investment at Generali Insurance Asset Management, said markets are “looking beyond the well-known inflation issue and what they see as a recession that will force central banks to relax again”.
“However, a little caution is needed, as the next quarter’s earnings may not keep pace with the current market enthusiasm.”
In government debt markets, the yield on the benchmark 10-year Treasury note rose 0.03 percentage points to 2.67 per cent as the price of the instrument fell. Data showed the US economy contracted for the second consecutive quarter after a strong rally for government debt last week.
While the Federal Reserve last week raised its key interest rate by 0.75 percent to a range of 2.25 to 2.5 percent, futures markets are now pricing the peak fed funds rate of about 3.3 percent in early 2023, followed by a rate hike. with cuts.
Germany’s 10-year Bund yield rose 0.03 percentage points to 0.86 percent, the barometer of eurozone debt costs sharply lower even after topping 1.9 percent in June.