On Monday, stock prices experienced a decline due to escalating concerns over China's property sector, which further underscored the need for stimulus measures, even as Beijing appeared to be unresponsive to such appeals. Simultaneously, increasing Treasury yields propelled the dollar, pushing it beyond the significant 145 yen mark.
The global scene was marked by several significant events as well. In Argentina, voters expressed their dissatisfaction with the primary election outcomes on Sunday by punishing the two dominant political parties. This paved the way for an unconventional libertarian candidate to secure the top spot, leading to increased pressure on the country's bond market.
Additionally, the Russian ruble weakened, crossing the psychologically significant level of 100 per U.S. dollar, a point it hadn't reached since March. This occurred concurrently with an incident involving a Russian warship firing warning shots at a cargo ship in the southwestern Black Sea, while President Vladimir Putin's economic advisor attributed the ruble's decline to loose monetary policies.
MSCI's global index (.MIWD00000PUS) showed a 0.3% decrease, largely influenced by declines in Asian stocks. The primary index outside of Japan declined by 1.2% (.MIAPJ0000PUS), following a 2% drop the previous week. Japan's Nikkei index (.N225) was down by 1.3%.
While Europe's comprehensive STOXX 600 benchmark (.STOXX) remained stable, the FTSE index, dominated by mining stocks and linked to China, experienced a decline of 0.46% (.FTSE). This decline was driven by concerns that the turmoil within China's biggest private property developer, Country Garden (2007.HK), might adversely impact the nation's homebuyers and financial organizations.
On Monday, Country Garden's stock plummeted by 18%, reaching an all-time low, as its onshore bonds were put on hold.
"We believe that markets are still underestimating the repercussions of the significant collapse in China's real estate sector," noted analysts from Nomura in a statement.
"The domino effect triggered by the steep decline in new home sales could result in an increasing number of developer defaults, a sharp reduction in government revenue, decreased demand for construction materials, lower wages for employees in both the property and government sectors, weakened consumer spending, and struggling financial institutions."
The weekend news of two Chinese listed companies not receiving payment on maturing investment products from Zhongrong International Trust Co. added to the negative sentiment. Chinese blue chips (.CSI300) fell by 0.73%, compounding a 3.4% decrease from the previous week, amid disappointing economic reports, culminating in a dire assessment of new bank loans in July.
However, U.S. share futures disregarded this news and increased by 0.2%. This comes after losses on Friday, when unexpectedly high figures for U.S. producer prices challenged market optimism that inflation would sufficiently ease to avoid further interest rate hikes.
CONSUMERS KEEP CONSUMING
This week's upcoming data includes British inflation and job data, as well as figures on U.S. retail sales, which are anticipated to show a 0.4% increase in spending. There are potential upside risks due in part to Amazon's Prime Day.
Such an outcome could challenge the market's relatively optimistic outlook on U.S. interest rates. Currently, futures are implying a 70% probability that the Federal Reserve has finished its rate hikes. The market also has more than 120 basis points of rate cuts priced in for next year, starting around March.
The minutes of the Fed's recent meeting are scheduled for release on Wednesday, and they might reveal that members are inclined to keep their options open regarding further rate hikes.
The combination of the economy's resilience and a significant government borrowing requirement has kept the 10-year Treasury yields at 4.18%, following a 12 basis point increase last week.
This increase has propelled the dollar against the low-yielding yen, pushing it up to 145.27, a peak not observed since November of the previous year.
The euro remained within a narrow range against the dollar, hovering around $1.0954.
The ascent of the dollar and yields has put pressure on gold, which is currently trading at $1,909 per ounce, marking a third consecutive week of decline.
Oil prices dipped due to concerns about China's struggling economic recovery and a stronger dollar, which overshadowed seven weeks of gains driven by OPEC+ output cuts.
Brent crude dropped by 0.6% to $86.23 per barrel, while U.S. crude declined by 1% to $82.48.
Reporting by Wayne Cole and Alun John, Editing by Sam Holmes, Bernadette Baum, and Christina Fincher
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