Hawkish Fed, China Surprises Derail Risk Appetite: Markets Wrap

The mood in global markets was risk-off on Thursday, as investors came to terms with the prospect offaster-than-expected U.S. interest rate hikes and a raft of disappointing data out of China. A looming European rate decision added another layer of uncertainty.

Stocks retreated across the board, with Asian shares taking their cue from Wednesday’s weak U.S. session and deepening recent losses. The Stoxx Europe 600 Index followed suit, while American equity futures pointed to further declines at the New York open. The dollar came under pressure against most major peers, while haven assets such as the yen, Treasuries and gold advanced. Emerging-market equities slumped.

The prospects for the global economic cycle are the center of attention, with conflicting signals emanating from the world’s two biggest economies. The Federal Reserve talked up U.S. growth as it raised rates and hinted at a total of four hikes in 2018, while China’s central bank unexpectedly failed to follow the increase. Policy makers in the Asian nation may well be concerned at its slowing pace of expansion; economic indicators including retail sales and industrial output missed estimates for May. President Donald Trump threatened to“strongly” confront China on trade, adding to the gloom.

As if investors didn’t have enough to digest, the European Central Bank will decide rates on Thursday andpotentially provide details on an end to its bond-buying program. The euro gained while most government bonds in the region slipped.

Terminal users can follow the ECB decision and statement on our TOPLive blog.

Embark Group CIO Peter Toogood discusses the euro-zone economy, inflation and ECB policy.

Daybreak: Europe. (Source: Bloomberg)

Elsewhere, the Australian dollar slid after employment data came in below expectations. South Korea’s Kospi index was the worst-performing equity market in Asia after a holiday, and the won tumbled. South Africa’s rand jumped.

These are some key events to watch this week:

  • The European Central Bank rates decision comes Thursday with a briefing from President Mario Draghi.
  • The Bank of Japan June monetary policy decision and news conference is Friday.
  • FIFA expects more than 3 billion viewers for the World Cup that begins this week in Russia.

And these are the main moves in markets:

Stocks

  • The Stoxx Europe 600 Index sank 0.5 percent as of 8:57 a.m. London time, the largest decrease in two weeks.
  • Futures on the S&P 500 Index dipped 0.1 percent to the lowest in more than a week.
  • The U.K.’s FTSE 100 Index decreased 0.6 percent to the lowest in more than two weeks on the largest dip in more than a week.
  • Germany’s DAX Index gained 0.4 percent to the highest in almost three weeks.
  • The MSCI Emerging Market Index sank 0.9 percent to the lowest in two weeks.
  • The MSCI Asia Pacific Index sank 0.9 percent to the lowest in almost two weeks on the biggest dip in more than two weeks.

Currencies

  • The Bloomberg Dollar Spot Index dipped 0.2 percent, the largest decrease in more than a week.
  • The euro climbed 0.2 percent to $1.1817, the strongest in a month.
  • The British pound climbed 0.2 percent to $1.3403, the largest increase in more than a week.
  • The Japanese yen rose 0.4 percent to 109.93 per dollar, the biggest advance in a week.
  • The Turkish lira increased 0.2 percent to 4.6399 per dollar.

Bonds

  • The yield on 10-year Treasuries decreased one basis point to 2.95 percent, the first retreat in a week.
  • Germany’s 10-year yield rose one basis point to 0.49 percent.
  • Britain’s 10-year yield gained one basis point to 1.369 percent.
  • Italy’s 10-year yield increased one basis point to 2.813 percent.

Commodities

  • West Texas Intermediate crude gained 0.1 percent to $66.72 a barrel, the highest in two weeks.
  • Gold climbed 0.3 percent to $1,302.93 an ounce, the highest in three weeks on the largest increase in more than a week.
  • Brent crude declined 0.2 percent to $76.61 a barrel.

— With assistance by Sarah Ponczek, Janine Wolf, Cormac Mullen, and Andreea Papuc

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