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Global stocks fell on Wednesday, after weaker-than-expected data from China dampened sentiment as investors await minutes from the Federal Reserve’s June monetary policy meeting.
Wall Street’s benchmark S&P fell 0.2 percent and the heavy Nasdaq Composite was flat, as US markets reopened after the Independence Day holiday.
The declines came as investors turned their attention to the release of minutes from the Federal Reserve’s latest meeting later on Wednesday, hoping to gauge policymakers’ expectations about future interest rates.
The US central bank chose to hold the federal funds rate steady in June, at a target range between 5 percent and 5.25 percent, but has indicated that its tightening campaign will not end until inflation returns to its 2 percent target.
“We don’t expect a negative reaction from the markets, because the markets are quite ready for that (hawkish) tone from the Fed on the record,” said Moopen Tahir, director of macroeconomic research and tactical solutions at WisdomTree Europe.
The markets realize that central banks are getting too tight. . . The sentiment is that the Fed is overreacting when it comes to inflation, and pessimistic pivots are only a matter of time.”
Traders will be watching Friday’s US payroll data closely, hoping to gauge the impact on the economy of the 16 months since the Fed began raising interest rates, soaring borrowing costs.
Meanwhile, the Stoxx 600 index at the level of the European region lost 0.7 percent, affected by the decline in stocks of basic materials and technology, the French Cac 40 index fell by 0.8 percent and the FTSE 100 index lost 0.8 percent.
Indexes fell after service sector data from China fell short of expectations, raising concerns that the world’s second-largest economy was struggling to recover after years of severe pandemic restrictions.
The closely watched Caixin services PMI came in at 53.9 on Wednesday, down from 57.1 for May and below the consensus estimate of 56.2. Readings above 50 indicate an expansion in activity.
“The services sector recovery appears to be slowing, after the initial strong burst of growth immediately after China rolled back its zero Covid policy,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.
This calls for a measured mitigation approach but not a massive stimulus. He indicated that limited targeted fiscal, quasi-fiscal and monetary policy measures are likely to follow.
The People’s Bank of China last month cut its record lending rates for the first time in nearly a year, as policymakers offered cautious monetary support in a bid to spur stronger growth.
China’s CSI 300 Index fell 0.8 percent and Hong Kong’s Hang Seng Index lost 1.6 percent after the data was released. Japanese Topix was flat.
Moreover, geopolitical tensions between the US and China have investors worried about the tech sector, as earlier in the week Beijing imposed new export controls on gallium and germanium products used in semiconductors.
Oil prices continued to rise from the previous session, prompted by the announcement that two of the world’s largest producers, Saudi Arabia and Russia, intend to cut supplies in August.
Brent crude, the international benchmark, rose 0.8 percent to $76.82 a barrel. WTI, which is dependent on US oil prices, rose 3.24 percent to $72.04.
