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Stocks, dollar gain despite surprise weak China data

Economy Aug 15, 2022 05:11PM ET
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2/2 © Reuters. FILE PHOTO - People pass by an electronic screen showing Japan's Nikkei share price index inside a conference hall in Tokyo, Japan June 14, 2022. REUTERS/Issei Kato 2/2
 
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By Chibuike Oguh

New York (Reuters) - Global equities and the U.S. dollar advanced on Monday despite weaker-than-expected economic data in China that prompted its central bank to cut its lending rate, stoking concerns of a global recession.

The People's Bank of China unexpectedly cut key interest rates after the world's second-largest economy reported July data on industrial output and retail sales that missed most analyst estimates.

China's strict COVID-19 restrictions have hobbled activity at its main manufacturing hubs and popular tourist spots, including Shanghai, even as a deepening downturn continues in the property market.

Markets reversed earlier session losses and were slightly higher. The MSCI world equity index, which tracks shares in 50 countries, was up 0.23%. Overnight in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan had closed 0.34% lower.

"You've been seeing a slowing trend in China amplified by the lockdowns," said Tom Plumb, portfolio manager at Plumb Balanced Fund in Wisconsin.

"The credit problems they've had especially with real estate developers, that's going to tie their hands for how aggressive they can go back to stimulation. But I think it's a sign they're going to try to be more accommodative."

The U.S. dollar strengthened following news of the Chinese central bank action amid disappointing data. The dollar index, which measures the greenback against six peers, rose 0.785%, with the euro down 0.97% to $1.0158.

Oil prices dropped by more than 3% on demand concerns after the weak data from China, one of the largest importers of crude. Brent crude futures settled down 3.1% to $95.10 a barrel, while U.S. West Texas Intermediate crude closed at $89.41, down 2.9%.

On Wall Street, major indexes climbed, reversing earlier session losses, following four straight weeks of gains and a likely moderation on U.S. Federal Reserve interest rate hikes after a slowdown in inflation.

The Dow Jones Industrial Average rose 0.42% to 33,903.57, the benchmark S&P 500 gained 0.37% to 4,296.09 points, and the Nasdaq Composite added 0.59% to 13,123.89.

U.S. Treasury yields were slightly lower as the market continued to assess to what extent a slowdown in inflation could impact the U.S. Federal Reserve's monetary tightening policies.

Benchmark 10-year Treasury yields were down to 2.795% from a 2.849% close last week. Two-year note yields fell to 3.1988% from 3.257%.

Gold fell over 1% to its lowest in a week on Monday amid sharp declines across precious metals due to a stronger dollar, with concerns over further rate hikes by the U.S. Federal Reserve adding to pressure on bullion.

Spot gold dropped dropped 1.3% to $1,778.53 an ounce, while U.S. gold futures fell 1% to $1,781.40 an ounce.

Stocks, dollar gain despite surprise weak China data
 

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Comments (6)
Elijah Ojeremi
Elijah Ojeremi Aug 15, 2022 5:47PM ET
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as US dollar went bullish I expected nasdaq to go bearish but went bullish also. why?
Mitch Conner
Mitch Conner Aug 15, 2022 5:47PM ET
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It makes zero sense
Howl Jenkins
Howl Jenkins Aug 15, 2022 9:08AM ET
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rate cuts are bullish in US but bearish in Jih-nuh haha
Notvery Goodathis
Peteymcletey Aug 15, 2022 8:45AM ET
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Rate cut in China should be sending oil higher... oil already dropped several times becomes of Xi recession.
EL LA
EL LA Aug 15, 2022 8:42AM ET
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Coal tells a different story.
Rob Anthony
Rob Anthony Aug 15, 2022 12:27AM ET
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Rasing rates in China while cutting in the USA. This will end well 🔥.
Kris Jay
Kris Jay Aug 14, 2022 8:40PM ET
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the fed has been horrible in communicating, especially claiming they are at "neutral rates".  Neutral if inflation was under 2%.  They have to continue to raise rates to get inflation from 8.5% to 2%,  that's 6.5% difference.   Two 75bps hikes moved inflation down 0.5% if that number is actual/real (it could just be an abberation), so you can imagine where the fed funds rate needs to be to move 6.5%.    The faster they do it the better off, but they will hit 75bps each meeting dragging inflation out for 12-18months.   Hard to understand what traders are jubulent about, pushing SP500 near its all time highs (which had QE and 0% interest rates).
John Healy
John Healy Aug 14, 2022 8:40PM ET
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I agree. Rates are still low enough to be considered stimulative which is probably the reason for the strength we’re seeing in the equities markets. I think the unspoken truth is that the Fed needs inflation to ultimately dissipate its balance sheet. I think they’re going to move slowly to let it run hot. As is customary, the consumer is left to pay the bill.
 
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