LONDON: Stock markets experienced a downturn on Wednesday as weak economic data from China overshadowed hopes of a potential interest rate hike by the Federal Reserve later this month. The Organization for Economic Cooperation and Development (OECD) marginally raised its growth forecast for the global economy, citing easing inflation and the relaxation of Covid restrictions in China. However, it cautioned that the recovery still faced significant challenges.
The World Bank’s recent warning about the global economic outlook further added to concerns as it revised down its growth expectations for the upcoming year. Meanwhile, reports of a potential visit by US Secretary of State Antony Blinken to China brought optimism for improved relations between the two superpowers.
The Turkish lira faced significant pressure against the dollar, reaching an all-time low, as the currency continued to struggle following President Recep Tayyip Erdogan’s re-election in late May. The greenback declined against the euro, pound, and yen.
Market observers closely monitored China, as reports indicated that authorities had asked the country’s largest banks to lower deposit rates in an effort to stimulate the struggling economy, which has been grappling with the effects of prolonged lockdowns. Analysts suggested that this move could indicate the People’s Bank of China’s consideration of an interest rate cut as early as this month.
The need for additional support was underscored by data revealing a more than 7% drop in Chinese exports in May, exceeding expectations and marking the first decline since February. Previous figures had already indicated a contraction in factory activity, highlighting the challenging task facing officials in jumpstarting the economy. While imports performed better than anticipated, concerns about consumer activity persisted.
Stock Market Situation in Europe
In addition to the disappointing Chinese data, markets reacted to news of sluggish industrial production in Germany, the largest economy in Europe. Khoon Goh, an analyst at Australia and New Zealand Banking Group, described the Chinese figures as “yet another disappointing data point,” intensifying concerns about growth and raising expectations for further policy support.
Oil prices experienced volatility in trading as traders weighed Saudi output cuts against potential slowing demand amid the global economy’s battle with elevated inflation.
Investors also focused on the upcoming Federal Reserve policy decision, with hopes that officials would choose to refrain from raising borrowing costs for the 11th consecutive meeting. Recent mixed jobs reports, indicating increased hiring but slower wage growth, suggested a healthy US economy and provided the central bank with room to delay a rate hike this month, despite lingering inflation concerns.
Key market figures around 1045 GMT showed the FTSE 100 in London up by 0.1%, the DAX in Frankfurt down by 0.1%, the CAC 40 in Paris down by 0.1%, and the EURO STOXX 50 down by 0.2%. In Asia, the Nikkei 225 in Tokyo closed 1.8% lower, while the Hang Seng Index in Hong Kong rose by 0.8% and the Shanghai Composite gained 0.1%. The Dow in New York closed flat.
Foreign exchange rates saw the euro strengthening against the dollar, the pound gaining ground against the dollar, and the dollar weakening against the yen. The euro weakened slightly against the pound.
Brent North Sea crude oil increased by 0.9% to reach $77.01 per barrel, while West Texas Intermediate rose by 1.0% to $72.46 per barrel.
