Stocks pare loses on China’s economic woes; bonds gain

BLOOMBERG

European stocks and US equity futures pared losses sparked by China’s economic woes, while bonds gained amid signs of easing inflation.
The Stoxx Europe 600 index pulled back from its lowest level in almost two months. China-exposed luxury-goods makers LVMH and Richemont remained among the biggest laggards, while Swedish landlord SBB plunged to an all-time low after its CEO said his holding company had deferred interest payments on a loan. Software and telecommunications stocks advanced, led by Capgemini SE after the Paris-based firm said it expanded a partnership with Google Cloud in data analytics and artificial intelligence (AI).
Futures on the S&P 500 and Nasdaq 100 pointed to a muted day for US equities after a rally on Wall Street, fuelled by excitement over AI, fizzled. Treasury yields fell and a gauge of the dollar gained for the first time in four days.
The euro slumped to a two-month low against the dollar after French inflation eased more than anticipated, reaching its lowest level in a year. Data from Germany’s states also signaled inflation may be falling more quickly than expected in the region’s biggest economy, prompting traders to trim bets on future European Central Bank interest-rate increases. European bonds rallied, with the German 10-year yield down about 9 basis points.
“There’s a fairly consistent line with the euro-area CPI numbers: it is coming down,” Paul Donovan, chief economist at UBS Global Wealth Management, said on Bloomberg TV. “This whole idea of stickiness, of inflation sticking around, is really being blown out of the water. Interestingly, we’re also getting this confirmed in the regional data in the US.”
Slowing inflation would fuel a recovery in consumer demand, helping the global economy avert a worst-case scenario, Donavon said. That would ease some of investors’ concerns about the outlook for corporate profits, though worries about China’s uneven recovery continue to weigh on markets.
An Asian equity gauge headed towards a two-month low after China reported the softest reading in its purchasing managers’ index since December. Hong Kong’s Hang Seng Index fell more than 2%, with a bear market on the horizon. The offshore yuan hit its weakest level versus the dollar in six months.
Copper extended its worst monthly loss in almost a year and iron ore fell further below $100 a ton, as China’s slowing manufacturing raised concerns about demand from the top metals-consuming economy.
The Nasdaq 100 added 0.4% to extend this year’s surge to 31%. Yet it ended off its high for the day as investors assessed the artificial-intelligence hype that’s boosted the index. Nvidia Corp hovered near $1 trillion in value after announcing several AI-related products.
AI-related software providers now stand to reap the benefits that Nvidia has laid, according to Cathie Wood, CEO and founder of Ark Investment Management. “For every dollar of hardware that Nvidia sells, software providers, SaaS providers will generate eight dollars in revenue,” she said on Bloomberg Television.
Investors also remain focussed on the debt-limit deal forged by President Joe Biden and House Speaker Kevin McCarthy. Congress is racing to pass the measure before June 5, the date when Treasury Secretary Janet Yellen has warned the US risks default.
Meanwhile, Federal Reserve Bank of Richmond President Thomas Barkin said he is looking for signs that demand is cooling to be convinced that US inflation will ease. His Cleveland counterpart Loretta Mester said she sees no “compelling reason” to pause interest-rate increases, particularly in the wake of the debt-limit deal.
Fed officials raised the central bank’s benchmark rate above 5% earlier this month and signalled they may be ready to pause the rapid tightening campaign they began in 2022.