Growth jitters trip stumbling stocks and bonds

[September 06, 2023]   By Nell Mackenzie

LONDON (Reuters) -The Wall Street open was set to mirror global stock declines on Wednesday after faltering growth in China and Europe heightened concerns about broader economic momentum, as investors weighed up the outlook for Federal Reserve interest rates.

S&P and Nasdaq futures traded 0.2% and 0.3% down, while MSCI's broadest gauge of world stocks had slipped 0.1% by 1045 GMT.

European stocks extended losses for a sixth consecutive session, dragged lower by global economic slowdown fears and higher crude prices.

The pan-European STOXX 600 index traded down 0.7% after hitting a week low of 0.8%.

German industrial orders fell more than expected in July, the federal statistics office said. Euro zone construction PMIs and retail sales data are due later in the day.

In Asia, the Hang Seng Index closed down 150 points and China's benchmark CSI300 Index fell 0.22%, ahead of expectations that China's exports contracted at a slower pace in August.

Chinese investor sentiment also wavered after a private-sector survey on Tuesday showed services activity expanded at the slowest pace in eight months in August, reflecting weak demand.

"Key risks that could undermine equity sentiment in September include developments in China's property market and potential increases in food and energy prices," said Bruno Schneller, a managing director at INVICO Asset Management.

China is also set to release lending and inflation data in coming days.

Another concern, Schneller said, was any deliberations on further oil production cuts, which could reignite inflationary concerns and dampen investor confidence.

Brent crude futures surpassed $90 a barrel on Tuesday after Saudi Arabia and Russia both said they would extend supply cuts to the end of 2023. Both Brent and U.S. West Texas Intermediate crude futures were about 30 and 40 cents down as of 1058 GMT at $89.65 and $86.42, respectively.

A man watches stock quotations on an electronic board outside a brokerage, in Tokyo, Japan, March 20, 2023. REUTERS/Androniki Christodoulou/File Photo

Adding to the dour mood, manufacturing activity in Germany, Britain and the euro zone declined, while their service sectors fell into contraction territory.

The results held "more evidence for increasingly weak growth in Europe ahead of the ECB’s decision next week, and will only add to the fears of stagflation," said Deutsche Bank strategist Jim Reid in a note on Wednesday.

As the U.S. returned from its Labor Day holiday, traders have been met with unusually high corporate bond issuance of over $36 billion due to hit the market this week, and $120 billion of investment grade dollar-denominated issuance expected this month, the note also said.

"The pressure on US Treasury yields then comes as investors hedge the interest rate risk," said Reid.

U.S. 10-year Treasury yields fell by as much as 2.6 basis points to a low of 4.242% on Wednesday, having touched a session high of 4.274%, its highest since Aug. 25, while the U.S. dollar rose in earlier trading to a near six-month high against a basket of currencies.

Investors are digesting recent signals on potential U.S. interest rate rises. Fed Governor Christopher Waller said on Tuesday that the latest round of economic data was giving the U.S. central bank space to see if it needs to hike again.

The Institute for Supply Management (ISM) releases U.S. services PMI on Wednesday.

Spot gold was largely flat at $1,926.08 per ounce, after posting its biggest one-day loss since Aug. 1 on Tuesday.

(Reporting by Nell Mackenzie and Kane Wu; Editing by Edmund Klamann, Sam Holmes and Sharon Singleton)

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