Global stock markets fall on China growth fears

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Global stocks fell on Wednesday as weaker-than-expected data from China dampened sentiment as investors awaited minutes from the Federal Reserve’s June monetary policy meeting.

Wall Street’s benchmark S&P fell 0.2 percent and the tech-heavy Nasdaq composite was flat as U.S. markets reopened after the Independence Day holiday.

The decline came as investors turned their attention to Wednesday’s release of minutes from the central bank’s last meeting, hoping to gauge policymakers’ outlook on future interest rates.

The U.S. Federal Reserve in June decided to keep the federal funds rate steady between 5 percent and a target range of 5.25 percent, but signaled that its tightening campaign will not end until inflation reaches its 2 percent target.

“We don’t expect an adverse reaction from the markets because the markets are fully prepared for it [hawkish] The central bank’s tone in the minutes”, said Mobeen Tahir, director of macroeconomic research and strategic solutions at WisdomTree Europe.

“Markets feel that central banks are more dovish than necessary . . . the feeling is that the central bank is on hyperbole when it comes to inflation, and a bad core is only a matter of time,” he noted.

Traders will also be closely watching Friday’s U.S. payrolls data, hoping to gauge the impact of higher borrowing costs on the economy 16 months after the central bank first began raising rates.

Meanwhile, Europe’s regional-wide Stoxx 600 lost 0.7 percent, dragged down by declines in basic materials and technology stocks, while France’s Cac 40 fell 0.8 percent and the FTSE 100 lost 0.8 percent.

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Indexes fell after China’s services sector data fell below expectations, raising concerns that the world’s second-largest economy is struggling to recover after years of strict pandemic restrictions.

The closely watched Caixin Services Purchasing Managers’ Index stood at 53.9 on Wednesday, down from May’s 57.1 and below consensus estimates of 56.2. Readings above 50 indicate expansion in function.

“After an initial strong growth spurt, the services sector recovery appears to be slowing right after China abandoned the zero-Covid policy,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.

“This warrants a measured easing approach, but not a mega-stimulus. Limited fiscal, semi-fiscal and targeted monetary policy measures may follow,” he noted.

The People’s Bank of China cut its key lending rates last month for the first time in nearly a year, and policymakers cautiously offered monetary support in an effort to spur stronger growth.

China’s CSI 300 fell 0.8 percent and Hong Kong’s Hang Seng index fell 1.6 percent following the data release. Japan’s topics are flat.

On top of that, geopolitical tensions between the US and China added to investor concerns over the technology sector, as Beijing earlier in the week placed new export restrictions on gallium used in semiconductors and Germanium.

Oil prices extended their gains from the previous session on announcements by world’s top producers Saudi Arabia and Russia that both plan to cut supply in August.

Brent crude, the international benchmark, was up 0.8 percent at $76.82 a barrel. West Texas Intermediate, based on U.S. crude prices, rose 3.24 percent to $72.04.

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