Global stocks mixed as weak China data temper rising oil price

Newsletter: Unhedged

US stocks reversed Tuesday’s losses as solid economic data and rising oil prices helped to temper investors’ pessimism about the pace of the economic recovery.

Wall Street’s blue-chip S&P 500 index closed 0.9 per cent higher for the day on Wednesday. The gains were broad-based, with energy stocks and growth-sensitive sectors such as financials and industrials the biggest risers. The technology-heavy Nasdaq Composite moved up 0.8 per cent.

The advances came as Federal Reserve data showed that US industrial production continued to increase in August, despite a sharp slowdown in growth due to the impact of Hurricane Ida. Separate data from the Bureau of Labor Statistics also showed the first monthly drop in import prices since last October, lending support to the view that the recent jump in inflation will be temporary.

In a further sign of a slight shift toward riskier assets in the US, the yield on the 10-year US Treasury — which climbs when prices fall — added 0.02 percentage points to 1.30 per cent.

The optimism in the US contrasted with European and Asian markets. The Europe-wide Stoxx 600 fell 0.8 per cent to its lowest closing price in more than a month. Britain’s FTSE 100 closed down 0.3 per cent, while the CAC 40 in France dropped 1 per cent and the Xetra Dax in Germany fell 0.7 per cent.

“One is faced with the fact that the global economy is decelerating somewhat faster than was expected from China to the United States and potentially in Europe,” said Sebastien Galy of Nordea Asset Management.

“Chinese retail sales were surprisingly weak on the back of the spread of Covid-19, holidays and likely a sense that the debt-fuelled rise of China driven in part by speculation in the real estate market is reaching an end,” he added.

China’s retail sales rose 2.5 per cent in August from the same month last year, a report on Wednesday showed, as the country dealt with outbreaks of the Delta variant of Covid-19. Economists polled by Reuters had expected to see 7 per cent growth.

On Tuesday, debt-laden Chinese homebuilder Evergrande hired restructuring advisers to help it through a liquidity crisis after its monthly sales almost halved from June to August.

A Bank of America survey of 258 asset managers found that a net 13 per cent expected global economic growth to rise, the lowest amount since April 2020.

US retail sales fell by an unexpectedly sharp 1.1 per cent in July from June as Delta coronavirus cases rose. Airlines have also reported demand is slowing while large employers from Microsoft to Ford have postponed plans to return workers to offices.

Brent crude, the oil benchmark, rose by 2.5 per cent to $75.45 a barrel after Hurricane Ida shut US refineries and surging natural gas prices drove speculation of energy consumers switching from gas to oil. Energy stocks listed on the S&P 500 rose 3.8 per cent.

“If indeed the US supply disruptions are a temporary buffer for prices amid a slowdown in the global oil demand recovery, then prices are carrying an immediate downside risk when the weather effects on production subside,” Rystad Energy analyst Nishant Bhushan said.

In Asia, Hong Kong’s Hang Seng index dropped 1.8 per cent in its third consecutive session of falls, taking its loss for the past three months to about 12 per cent. The CSI 300 index of mainland Chinese stocks dropped 1 per cent.

The dollar index, which measures the US currency against six others, fell 0.2 per cent. Sterling rose 0.2 per cent against the dollar to $1.3843 after UK inflation jumped to an annual rate of 3.2 per cent, increasing expectations for the Bank of England raising interest rates from its record low.