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European stocks fell as investors offset the worsening economic slowdown in China with US inflation data lowering the Federal Reserve’s bets moving closer to its first interest rate hike in the era. of the pandemic.
The regional Stoxx Europe 600 index fell 0.2% while the UK’s FTSE 100 fell 0.1%.
Data on Tuesday showed that consumer prices in the United States rose 0.3% in August from July, a sharp deceleration from the previous monthly increase.
Asian markets did not react positively, despite their sensitivity to US monetary policy. Hong Kong’s Hang Seng Index fell 1.7% in its third consecutive session of drops, taking its loss for the past three months to more than 13%. The CSI 300 index of mainland China stocks fell 1%.
Macau, the world’s largest gaming hub, has said it may tighten oversight of its gaming industry in a move that has slumped shares of casino operators as investors feared a new regulatory crackdown on private companies in China. The Beijing government has already put in place tough new rules for the tech sector, online gaming, and private education.
China’s retail sales rose 2.5% in August from the same month last year, according to a report released Wednesday, as the country faced outbreaks of the highly infectious Delta variant of Covid -19. Economists polled by Reuters expected growth of 7%.
On Tuesday, indebted Chinese homebuilder Evergrande hired restructuring advisers to help it get through a liquidity crunch after its monthly sales nearly halved between June and August.
“Chinese retail sales have been surprisingly weak due to the spread of Covid-19, the holidays and possibly the feeling that China’s debt-fueled rise, driven in part by speculation in the real estate market, is touching on its end ”, declared Sébastien Galy. of Nordea Asset Management.
“We are faced with the fact that the global economy is decelerating a little faster than expected from China to the United States and potentially to Europe.”
A Bank of America survey of 258 asset managers found that 13% net expects global economic growth to increase, the lowest amount since April 2020.
Retail sales in the United States unexpectedly fell 1.1% in July from June as consumers cut spending as cases of the Delta coronavirus increased. Airlines have reported that demand is slowing as large employers from Microsoft to Ford have postponed plans to return workers to their offices.
Oil prices were unaffected by slowdown fears, with Brent crude rising 1% to $ 74.3 a barrel after Hurricane Ida shut down US refineries.
The yield on 10-year U.S. Treasuries rose 0.01 percentage point to 1.289% after falling sharply on Tuesday, with traders expecting the Fed to take longer to withdraw its $ 120 billion from ‘monthly bond purchases that boosted markets during the pandemic. Bond yields move in the opposite direction to prices.
The yield on UK 10-year gilts rose 0.02 percentage points to 0.76% after the country’s inflation rate climbed to an annual rate of 3.2% in August. The British pound gained 0.2% against the dollar to buy $ 1.13836.
“Tightening UK monetary policy is firmly on the agenda,” said Richard Woolnough, fund manager at M&G Investments, citing a labor shortage and soaring house prices as well as the inflation as the reasons the Bank of England took action.