LONDON—Global stocks were stuck near five-week lows on Tuesday as rising government bond yields unnerved investors, while rate cuts from China and disappointing data underscored the economic malaise gripping the world’s second biggest economy.
Emerging markets remained in focus a day after Argentina devalued its currency by nearly 18 percent, while Russia’s central bank on Tuesday raised interest rates by 350 basis points at an extraordinary meeting following a fresh slide in the ruble.
U.S. 10-year Treasury yields meanwhile rose to a nine-month high at around 4.22 percent, while Germany’s benchmark 10-year bond yield rose to its highest since March as a selloff in bonds, driven in part by resilient U.S. economic growth, deepened.
European stocks fell almost 0.8 percent, U.S. stock futures pointed to a weak open on Wall Street while Asian shares fell 0.4 percent.
This all left MSCI’s world equity index, heading back towards five-week lows touched on Monday.
China Cuts, Russia Hikes
Cuts to China’s one-year loans to financial institutions, at 15 basis points, were the largest since the outset of the COVID-19 pandemic. Industrial output and retail sales growth both slowed from a month earlier to a year-on-year pace of 3.7 percent and 2.5 percent respectively, missing expectations.
The yuan dropped to its lowest in 9–1/2 months. It was last trading at around 7.2834 per dollar, having been as low as 7.2899.
“The rate cut had been coming but it was a bit sooner than expected and the data was significantly weaker than expected,” said Chris Scicluna, head of research at Daiwa Capital Markets. “Globally, markets are right to be concerned about where China growth is going in the current quarters.”
MSCI’s broadest index of Asia-Pacific shares outside Japan was not far from a one-month low hit on Monday of 506.3 as worry about China’s frozen property sector swept across regional markets.
Property investment, sales, and fundraising extended their slide in July, data on Tuesday showed. New construction starts by floor area are down nearly 25 percent year-on-year and highlight how there is neither the appetite nor funds to build.
In Britain, sterling rose and two-year British government bond yields, which are sensitive to speculation about interest rate changes, hit their highest level in a month.
That followed data showing basic wages in Britain hit a new record growth rate, adding to worries for the Bank of England (BoE) about long-term inflation pressures even after 14 back-to-back increases in interest rates.
“We expect another hike in September and another one after that,” said Mr. Scicluna.
China’s weak data overshadowed a surprise in Japan, where tourism and car exports sent annualised growth surging to 6 percent in the second quarter, well above the 3.1 percent analysts had expected. That lifted the Nikkei by 0.6 percent.
The yen showed little reaction and hit a nine-month low of around 145.86 to the dollar, capped as controlled Japanese yields leave a wide gap on rising U.S. yields.
The euro was up a fifth of a percent at $1.0925.
In Australia, wages growth came in steady for the last quarter, just below expectations, and added to the case for a pause in interest rate hikes for the time being.
Russia’s central bank meanwhile hiked its key interest rate by 350 basis points to 12 percent, an emergency move to try and halt the ruble’s recent slide after a public call from the Kremlin for tighter monetary policy.
The ruble pared gains after the decision to stand 0.3 percent weaker at 98.00, but still significantly above lows near 102 on Monday which had not been hit since the early weeks after Russia invaded Ukraine.
Brent crude futures were 40 cents weaker at $85.81 per barrel.
