• China’s economy slowed sharply in Q2
  • US yields, dollar retreat after comments from Fed officials
  • European markets have stabilized, looking ahead to Italy’s political crisis

LONDON, July 15 (Reuters) – Global stocks tried to move higher on Friday after four days of losses on growing fears of an economic slowdown, although growth concerns were boosted by data showing a sharp slowdown in China.

Markets got a reprieve from the selloff after two Fed policymakers on Thursday lowered their bets on a 100-bps interest rate hike this month.

But they have not allayed fears that central bankers’ efforts to rise above inflation will disrupt the global economy.

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Fears of a recession were also fueled by data showing a slower second-quarter contraction in China, reflecting a major hit from the COVID-19 lockdown. Annual growth of 0.4% was the worst since 1992, except for early 2020 when the COVID pandemic began. read more

The data sent Chinese shares 1.7% lower and dragged Japan’s former Asia index (.CSI300), (.MIAPJ0000PUS) to a two-year low, while signs of stress in the property sector were weighed on Hong Kong’s (.HSMPI) record.

“The economic slowdown is intensifying, supported by positive economic indicators,” said Salman Ahmed, global head of Fidelity International.

He was referring to weak economic data almost everywhere, as opposed to rising inflation and tight labor markets.

“We moved quickly from a stagflationary setup to more of a recession-acted one, and very strong inflation is raising fears that the Fed will need to tighten more going forward.”

Bets widened the Federal Reserve could raise rates by a full percentage point this month, following US data showing a 9.1% contraction. But Fed Governor Christopher Waller and President of St. Louis Fed’s James Bullard, who is often seen as bullish, said Thursday he favors a move of 75 bps.

Markets still offer a 45% chance of a big increase, but these comments dampened sales on Wall Street and futures offer a chance to open in New York on Friday, .

The pan-European equity index rose 0.7% (.STOXX), also supported by news the Italian president refused to step down from Prime Minister Mario Draghi. Italian shares hit 0.9%, although they remain 5% lower on the week (.FTMIB).

Signs from second-quarter earnings companies, meanwhile, are not encouraging; Most European companies released lower results on Friday, following Thursday’s forecast from major US banks.

BONDS AND OIL

China data sent steel prices down 9.1%, while Brent crude futures fell $1 to $94.8 a barrel.

Australia’s mining index (.AXMM) hit a nine-month low, weighed down by a warning from Rio Tinto about job cuts. read more

Bonds remained key, with US Treasury yields falling around 3 bps across the curve. Two-year yields hovered around 17 bps above the 10-year benchmark, a so-called curve inversion that usually signals a recession.

The move was stronger in Europe, due to political turmoil in Italy and as financial markets backed off bets on the European Central Bank tightening at the end of the year.

German 10-year yields fell 11 bps to 1.071%, the lowest since May 31.

Italian yields fell after jumping on Thursday by nearly 20 bps but German yields rose to their highest level in a month.

Peter McCallum, an economist at Mizuho, ​​said the latest developments had left Italy in a “no man’s land”, with no clarity on whether a new vote would be planned.

“Until then we have doubts, really.”

The euro was flat, slightly recovering from a decade low of around $0.9952, after falling 1.5% this week and hitting the greenback for the first time in 20 years.

The yen, meanwhile, has weakened to 140 per dollar, and was last traded at 138.8, and the dollar index declined to touch.

US retail sales data later on Friday will show how consumers are reacting to rising prices and signs of softer growth.

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Additional reporting by Tom Westbrook in Singapore and Yoruk Bahceli in London Edited by Mark Potter

Our Standards: Thomson Reuters Trust Principles.



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