- World equities struggle with largest decline in index history
- Dollar rises against Aussie, kiwi
- Ten-year government bond yields remain below 3%
- Chinese markets stable in a sea of red in Asia
- Metal kinks as recession jitters mount
LONDON, July 1 (Reuters) – The second half of the year started Friday with another first-rate beating for global equity markets as concerns about the recession that have emerged in recent weeks have also pushed oil and metals back down.
MSCI’s World Stock Index (.MIWD00000PUS) has had the worst start in a year since its founding in 1990 in the last six months read more and an early 1% tumble in Europe (.STOXX) and for Wall Street, futures pointed to more pain in the future.
Asia also dived lower (.MIAPJ0000PUS) with the worst decline in Taiwan, where the growth-sensitive benchmark (.TWII) fell more than 3% to its lowest point since the end of 2020.
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Japanese Nikkei (.N225) fell 1.75%. The Australian and New Zealand dollars each fell 1% to their lowest level in two years. The growth-prone copper fell 2.7%, heading for its fourth consecutive weekly decline, as US Treasuries and German Bunds rallied in bond markets. † EUR/CVD
Natixis’ head of European macro research Dirk Schumacher said that while the region was not yet in recession, the concern was that it could be pushed into recession.
New data on Friday showed that euro-zone manufacturing output fell last month for the first time since the first wave of the coronavirus pandemic in 2020. read more
“In Europe and globally, the cyclical picture doesn’t look great,” Schumacher said. “There is a long list of risk factors,” he added, and “the usual safety valve (from lower interest rates or central bank stimulus) is clearly not there now.”
Across the Atlantic, S&P 500 futures pointed lower again after the US benchmark index closed its worst first half since 1970 on Thursday.
However, it is hints of peaking inflation and signs of weak growth that are stabilizing bond markets.
Two-year treasuries are on track for their best week since the markets’ pandemic collapse in March 2020, as traders are now reversing their bets on rate hikes.
The movements turned jerky again on Friday. But the US two-year yield has fallen nearly 14 basis points to 2.91% this week. 10-year yields have fallen about 15 basis points weekly to 2.99% and Bunds have fallen to 1.39% from a high of 1.56% on Monday.
Fed futures FEDWATCH, which a few weeks ago were priced at rates expected to hit 4% next year, now show markets forecasting rate cuts by mid-2023 and peaking below 3.5%.
The dollar was back in the spotlight on Friday, having just posted its best quarter since 2016 when US interest rates rose. His reputation means that economic uncertainty has kept him buoyed even as yields have declined.
“There is a demand for a safe haven,” said Khoon Goh, head of Asia research at ANZ Bank in Singapore.
Other safe-haven currencies such as the Japanese yen and the Swiss franc also attracted investors. The Australian dollar fell on support at $0.6850 in Asia, last falling 1.4% at $0.6803. The kiwi fell by 1.1% to 0.6178.
The yen rose about 0.2% to 135.40 per dollar and slightly further to 141.64 per euro.
A series of surveys on Friday found that China was an outlier. Manufacturing activity rebounded strongly in June, despite slowdowns in Japan and South Korea and contraction in Taiwan.
Markets are also bouncing and although the Shanghai Composite (.ssec) and blue chip CSI300 (.CSI300) down about 0.3% since Friday, they are each set to make five consecutive weeks of gains.
Hong Kong’s markets were closed for a holiday and the city was targeted for the visit of Chinese President Xi Jinping.
The yuan fell with the broader market to 6.7136 per dollar. Gold was weighted by the stronger dollar and US interest rates, flirting at $1,800 an ounce.
Bitcoin, which experienced its largest quarterly decline in the three months to the end of June, fell 3% to $19,375 on Friday.