Global stocks fall, dollar rallies as weak China data disappoints

[August 08, 2023]  By Harry Robertson and Scott Murdoch

LONDON/SYDNEY (Reuters) - Global stocks fell on Tuesday and the dollar climbed as investors assessed the latest weak economic data out of China, while banks dragged euro zone indexes lower after Italy approved a windfall tax on lenders.

MSCI's index of global stocks fell 0.32% after climbing 0.5% on Monday. The MSCI Asia index, which excludes Japan, dropped 1.18%.

Data showed China's imports contracted by 12.4% in July, far more than forecasts for a 5% drop. Exports fell by 14.5%, compared with a fall of 12.5% tipped by economists.

European stock indexes fell sharply, with the pan-European STOXX 600 down 0.55% and Germany's DAX off by 1.14%. Britain's FTSE 100 was down 0.6%.

"The trade figures are absolutely terrible," said Timothy Graf, head of macro strategy for EMEA at State Street.

"It's a bit of a mild, classic, risk-off type of day where you've got equity futures, led by Asia, heading lower and rates heading lower."

Futures on the U.S. S&P 500 were down 0.54% after the stock index climbed 0.9% on Monday. Nasdaq futures were 0.53% lower.
 

Graf said more worrying news out of China's enormous and shaky property sector was also likely weighing on markets.

Country Garden, China's biggest privately owned property developer, said on Tuesday it had not paid two dollar bond coupons due on Aug. 6, adding to signs of severe stress in the sector.

The dollar picked up against its major trading partners as investors shifted towards safer assets, with the dollar index last 0.46% higher at 102.55.

"I think what also stands out here is (that) the U.S. growth impulse continues to outperform Europe and China," said Erik Nelson, macro strategist at Wells Fargo.

Banks were the biggest fallers in the euro zone on Tuesday after Italy approved a one-off 40% tax on banks' profits from higher interest rates.

A man shelters under an umbrella as he walks past the London Stock Exchange in London, Britain, August 24, 2015. REUTERS/Suzanne Plunkett

The euro zone bank index was down 3.62% and on track for its biggest daily fall since the financial turmoil of March.

Italy's BPER banking group dropped 9.22%, while Intesa Sanpaolo fell 7.85%. Germany's Commerzbank was 3.79% lower.

"Part of this longer-term dollar-weakness narrative rests on capital shifting out of the U.S. and away from U.S. stocks to the value plays like European banks," Nelson said, adding that the bank tax "doesn't help".

U.S. and European bond yields fell, reversing some of the increases seen over the last week.

The U.S. 10-year Treasury yield was down 8 basis points to 3.996%, after touching its highest level since November on Friday at 4.206%. Yields move inversely to prices.

Global investors are keenly awaiting Thursday's U.S. inflation figures for July, which will be a key input into the Federal Reserve's next interest rate decision in September.

U.S. inflation likely accelerated slightly in July to 3.3% year on year, while the core rate was likely unchanged at 4.8%, according to a Reuters poll of economists.

Headline inflation peaked at 9.1% in June 2022 but stood at 3% in June 2023.

Adding to the gloomy mood in the financial sector was a report by Moody's that cut the credit ratings of 10 banks by one notch. It also placed six banking giants, including Bank of New York Mellon, on review for potential downgrades.

U.S. crude oil fell 1.67% to $80.56 a barrel on Tuesday. Brent crude was 1.76% lower at $83.82 per barrel.

(Reporting by Harry Robertson in London and Scott Murdoch in Sydney; editing by Lincoln Feast and Jason Neely and Miral Fahmy)

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