Global shares dip after China data; traders bet on Fed sea change
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[July 17, 2023] By
Amanda Cooper
LONDON (Reuters) - Global shares and commodities slipped on Monday after
data showed the Chinese economy is growing more slowly than expected,
while the dollar eased as traders ramped up their bets for an imminent
end to U.S. rate rises.
China reported economic growth of 0.8% in the second quarter, above the
0.5% forecast, while the annual pace slowed more than expected to 6.3%,
well below expectations for a reading of 7.3%.
Last week brought a broad sweep out of the dollar and into risk assets
such as equities and emerging market currencies, as well as into bonds,
after a cooler reading of U.S. consumer inflation was enough to convince
investors that the Federal Reserve could deliver the final rate hike of
its monetary policy cycle this month.
The dollar, which fell 0.1% against a basket of major currencies on
Monday, staged its biggest weekly fall of 2023 last week, dropping 2.3%,
as traders rushed to price out the chance of a September rate rise.
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This week's data macro calendar is light and Fed officials are in their
"blackout period" ahead of their July policy meeting, leaving investors
with the big question of whether last week's market moves will continue
or reverse.
"I just can't help but think we have gone a little bit too far too fast
... one cooler inflation number doesn't exactly mean the Fed are done
and dusted and not going to hike again," TraderX strategist Michael
Brown said.
"Obviously, they're going to hike next week, but after that, markets
pretty much think they're going to be done, and are starting to price in
cuts for the first half of next year, which to my mind, is too
aggressive," he said.
"Given that we don't have a lot on the calendar this week, the path of
least resistance is lower for the dollar in the near term," Brown added.
Global equities, which last week posted their strongest weekly rally
since March, edged down 0.1% on Monday, under pressure from a decline in
Europe, where weakness in China-sensitive shares like miners knocked
0.3% off the STOXX 600.
U.S. stock index futures erased earlier gains and were down 0.1% ahead
of a packed week of corporate earnings.
Tesla is the first of the big tech names to report this week, along with
Bank of America, Morgan Stanley, Goldman Sachs and Netflix.
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![](../images/071723PIX/busine79.jpg)
An investor looks at a stock quotation
board at a brokerage office in Beijing, China January 3, 2020.
REUTERS/Jason Lee/File photo
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Data on U.S. retail sales are expected to show a rise of 0.3%
ex-autos, continuing the slower trend but solid enough to fit into
the market's favored soft-landing theme.
"We continue to look for a modest contraction to take hold toward
the end of the year, but the path to a non-recessionary disinflation
is starting to look more plausible," said Michael Feroli, an
economist at JPMorgan.
"We expect Fed officials cheered the latest inflation developments,
but declaring victory with sub-4% unemployment, and over 4% core
inflation, would be reckless."
PRICED FOR 2024 POLICY EASING
Markets imply around a 96% chance of the Fed hiking to 5.25-5.5%
this month, but only around a 25% probability of yet a further rise
by November.
Two-year U.S. Treasury yields, the most sensitive to shifts in rate
expectations, were flat on the day at 4.721%, just above one-month
lows.
The dollar fell 0.4% against the yen to 138.16, after last week's
2.4% drop. The euro was steady at $1.1232, having surged 2.4% last
week to a 2023 high.
Sterling reversed course, falling 0.1% to $1.3073 ahead of UK
inflation figures this week, where another high reading would add to
the risk of further sizable rate hikes.
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"A lift in the core CPI can encourage financial markets to price in
even more tightening from the Bank of England and push GBP/USD up
towards upside resistance at $1.3328," said analysts at CBA in a
note.
Crude oil dropped following the China GDP data that cast doubt on
demand from the world's largest importer of energy, just as
production in Libya picked up after a temporary outage.
Brent crude futures were last down 1.4% at $78.72 a barrel. Copper,
which is also highly sensitive to Chinese data, dropped 2.5% to
$8,458 a ton.
(Additional reporting by Wayne Cole in Sydney; Editing by Lincoln
Feast and Christina Fincher)
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