Stocks falter as drop in China export stokes further concerns

BLOOMBERG

US futures and European shares drifted lower, as a bigger-than-expected drop in Chinese exports stoked further concerns about the strength of global demand.  Signs of fading momentum in the world’s second-largest economy are weighing on sentiment globally, damping the optimism earlier this year surrounding China’s reopening from pandemic restrictions. The nation’s exports to most destinations contracted in May.
Despite some hopes over potential stimulus, conviction on the China reopening trade has faltered, with sectors such as luxury goods among the hardest-hit. Hermes International was among the biggest drags on the Stoxx 600 index, and along with LVMH was set to decline for the third straight session on Wednesday.
“Weaker global trade is not a new story but it is surprising how quickly China’s reopening boost has faded,” said Craig Erlam, a senior market analyst at Oanda. “Pressure is set to intensify on the leadership to announce new stimulus measures in a bid to revitalise the economy again.” Europe’s Stoxx 600 gauge ticked lower, while the FTSE 100 wavered after UK lender Halifax said the nation’s house prices posted their first annual decline since 2012.
Danske Bank shares gained as much as 5.9%, after it raised its key target for profitability and pledged dividends as the lender seeks to leave behind a turbulent period defined by scandals. Inditex SA rose as much as 6.3%, its biggest jump in a year lifting the retail sector, after earnings from the Zara owner beat expectations. In currency markets, Turkey’s lira slumped about 7% to a record low against the dollar amid increasing signs that policy makers may be scaling back interventions to support the currency.
A gauge of greenback strength was little changed. Treasury yields were slightly higher after a Treasury bill auction announcement weighed on short-dated US bonds.
Elsewhere, the Securities and Exchange Commission widened its sweeping crackdown on crypto by accusing Coinbase Global Inc of running an illegal exchange, a move that could make it harder for the industry to operate and for US citizens to trade. Bitcoin slipped.
A rotation into financial shares suggested the breadth of the S&P 500’s recent rally might extend beyond technology soon. While a decline in Apple crimped gains, the benchmark gauge still rose 0.2%, leaving it just short of a bull market. In commodities, gold was edged lower.
The global economy is set for a weak recovery from the shocks of Covid and Russia’s war in Ukraine, dogged by persistent inflation and the restrictive policies of major central banks seeking to contain price pressures, the OECD said.
The Federal Reserve is expected to hold rates steady at its June meeting, while keeping the option for hikes later on with the rate of US inflation still high.