Stocks decline as China data saps risk sentiment

BLOOMBERG

European stocks and US equity futures followed Asian shares lower after weak services-industry data from China raised fresh concerns about the outlook for the global economy. The Stoxx Europe 600 Index fell about 0.5%, with miners leading the retreat on concern about waning minerals demand from China. The gauge extended its decline after a composite purchasing managers’ index for the common-currency region dropped to the lowest since December.
Casino Guichard-Perrachon SA plunged as much as 42% as investors size up competing offers to rescue the troubled French grocer. Contracts on the S&P 500 and Nasdaq 100 dipped, suggesting US stocks may open lower when trading resumes after the Independence Day holiday.
The latest evidence of slowing economic growth around the globe is sapping demand for equities after a stellar rally in the first half, driven mostly by mega-cap tech stocks. Major central banks including the Federal Reserve and European Central Bank are still in tightening mode, clamping the brakes on economic growth.
“It’s too early to say how deep the recession that is to come will be, but clearly a slowdown is coming,” Fabiana Fedeli, chief investment officer for equities and multi assets at M&G Plc, said on Bloomberg TV. “It’s too early to throw in the towel on risk assets whether in equities or credit. But at the same time you have to stay pretty high on the quality pole.”
With more interest-rate hikes anticipated from the Fed and the ECB in July, an aggregate gauge of borrowing costs calculated by Bloomberg Economics now shows a peak of 6.25% this quarter, up from 6% foreseen three months ago.
Traders were expected to  monitor the minutes of the Fed’s last policy meeting, which left Wall Street perplexed as officials paused their rate-hike cycle after 10 consecutive moves, but forecast two additional increases this year. A gauge of dollar strength edged higher, while the yield on policy-sensitive two-year Treasuries drifted about three basis points lower to 4.91% as US bond trading resumed. European bonds gained, with Germany’s 10-year yield dipping three basis points to 2.42%.
Initial  losses in Chinese equities deepened and the offshore yuan reversed an advance after the Caixin China services purchasing managers’ index was weaker than expected. The yuan’s drop was also notable because it came despite the central bank earlier maintaining its support for the currency in its daily fix.  “This brings focus back on slowing growth momentum and the recent step-up in geopolitical angst,” Charu Chanana, market strategist at Saxo Capital Markets, said of the China services data.
The fading optimism over the outlook for China has also driven investors to lower their expectations for gains in Asian equities this year. A survey of 17 strategists and fund managers by Bloomberg News indicates MSCI Inc’s Asia-Pacific Index may only rise about 5% by year end from previous closing level.
Elsewhere, oil retreated after rallying on Saudi Arabian and Russian output cuts. Gold was little changed.