Stocks, bonds decline as China’s surprise rate cut deepens gloom

BLOOMBERG

Stocks and bonds declined as concern grew that China’s faltering recovery and debt problems will spread to the global economy. Instead of reassuring investors, China’s surprise rate cut only deepened anxiety about policy steps to revive growth, driving Europe’s Stoxx 600 index down as much as 1.2% to the lowest in a month. US equity futures pointed to a retreat at the open.
Global bonds fell. Treasury yields extended their climb, with the 10-year rate trading at 4.23%, the highest since October. UK gilts slid and the pound climbed after wage growth accelerated to the strongest pace on record.
China’s emergence from pandemic lockdowns has been disappointing, fanning concern the world’s economic engine is sputtering. The nation is struggling to contain a potential default at developer Country Garden Holdings Co after it missed payments on its debt.
“China property worries and today China unexpectedly cutting two key rates are sending a clear signal that growth may not reach its GDP guidance of 5% by year-end,” said Stephane Ekolo, a strategist at TFS Derivatives. “Hence global growth is likely to suffer and the probability of a real slowdown or recession is growing.”
China’s rate cut came amid a raft of news depressing risk appetite, from a devaluation in Argentina to an attempt by Russia on Tuesday to stem the ruble’s slide with an emergency rate hike. The ruble erased earlier gains and resumed its drop after Russia raised its key rate to 12% from 8.5% and said another increase is possible.
Argentina’s already-distressed debt slumped after a populist who vowed to burn down the central bank won surprisingly strong support in a primary vote. Its under-siege government submitted to a 18% currency devaluation.
China’s yuan slipped as much as 0.5% after policymakers lowered the rate on one-year loans — known as the medium-term lending facility — by 15 basis points to 2.5%. Data for July underscored the economic slide, showing growth in consumer spending, industrial output  and investment dropping across the board and unemployment picking up.
Still, Bank of America Corp’s latest global survey of fund managers found investors the least pessimistic on stocks since February of last year, before the Federal Reserve began one of the most aggressive tightening cycles in decades.
While participants predicted global growth will weaken over the next 12 months, expectations “improved significantly in August” and recession concerns are fading, according to the survey conducted from August 4 to August 10.