Stocks and oil slide as dire data from China fuels recession fears

Traders are seen in front of a screen with trading numbers in red at the Stock Exchange of Thailand in Bangkok, Thailand March 13, 2020. REUTERS/Juarawee Kittisilpa/Files

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  • Asian scholarships:
  • Retail sales in China fall 11.1%, production falls 2.9%
  • Nikkei Cuts Gains, S&P 500 Futures Fall
  • Dollar Holds Near 20-Year Highs, Yen Gets Safety Offer
  • Oil down more than $2 a barrel on demand concerns

SYDNEY, May 16 (Reuters) – Asian stock markets stumbled on Monday and oil prices fell after shockingly weak data from China underscored the deep damage the lockdowns are causing to the world’s second-largest economy.

Retail sales in China in April fell 11.1% on the year, nearly double the fall forecast, while industrial production fell 2.9% as analysts expected to a slight increase. Read more

“The data paints a picture of an economy in decline and in need of more aggressive stimulus and rapid easing of COVID restrictions, none of which are expected to be released anytime soon,” said Mitul Kotecha, head of of emerging markets strategy at TD Securities. .

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“China’s weaker growth trajectory will add pressure to its markets and fuel a further deterioration in the global economic outlook, weighing on risk assets. We expect further CNY depreciation.”

In Europe, EUROSTOXX 50 and FTSE futures both fell 0.3%. S&P 500 stock futures lost early gains to fall 0.6%, while Nasdaq futures fell 0.5%. Both are a far cry from last year’s highs, with the S&P falling for six straight weeks.

China’s central bank also disappointed those hoping for rate easing, although on Sunday Beijing allowed mortgage interest rates to drop further for some homebuyers. Read more

Monday’s data overshadowed news that Shanghai was aiming to reopen widely and allow normal life to resume from June 1. Read more

chinese blue chips (.CSI300) lost 0.8% in reaction, while commodity currencies took a hit, led by the Australian dollar, which is often used as a liquid indicator of the yuan.

MSCI’s broadest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS) lost its early gains to hold steady, after falling 2.7% last week when it hit a two-year low.

Japan’s Nikkei (.N225) clung to gains of 0.5%, after losing 2.1% last week even as a weak yen offered some support for exporters.

Soaring inflation and rising interest rates sent U.S. consumer confidence plummeting to an 11-year low in early May and raised the stakes for April retail sales expected on Tuesday. Read more

DEGRADED GROWTH

A hyper-hawkish Federal Reserve led to a sharp tightening of financial conditions, leading Goldman Sachs to cut its 2022 GDP growth forecast to 2.4% from 2.6%. Growth in 2023 is now estimated at 1.6% on an annual basis, down from 2.2%.

“Our financial conditions index has tightened more than 100 basis points, which should dampen GDP growth by around 1pp,” said Goldman Sachs economist Jan Hatzius.

“We expect the recent tightening in financial conditions to persist, in part because we believe the Fed will deliver on its promises.”

Futures imply 50 basis point hikes in June and July and rates between 2.5 and 3.0% by the end of the year, up from 0.75 to 1.0% currently.

Fears that the tightening could lead to a recession spurred a rally in bonds last week, which saw 10-year yields fall 21 basis points from highs of 3.20%. Early Monday, yields eased again to 2.91%.

The pullback saw the dollar fall from a two-decade high, but not by much. The Dollar Index was last at 104.560 and a short distance from the high of 105.010.

The euro settled at $1.0403, after hitting $1.0348 last week. The dollar lost ground against the yen, which appeared to get a safe haven offer following the data from China, slipping to 129.02 yen.

In cryptocurrencies, Bitcoin last rose 2% to $30,354, after hitting its lowest level since December 2020 last week following the collapse of TerraUSD, a so-called stablecoin.

In commodities markets, gold came under pressure from high yields and a strong dollar and was last at $1,809 an ounce after losing 3.8% last week.

Oil prices reversed as dire Chinese data rekindled demand concerns.

Brent fell $2.31 to $109.24, while US crude lost $2.14 to $108.35.

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Reporting by Wayne Cole; Editing by Sam Holmes and Clarence Fernandez

Our standards: The Thomson Reuters Trust Principles.

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