Global stocks fall, dollar rallies on weak China data

NEW YORK, (Reuters): Global stocks skidded and the dollar jumped on Tuesday after Moody’s cut the credit ratings of 10 small- to mid-sized US banks and China‘s trade data was worse than forecast in July, raising concerns about the global economic outlook.

The yuan slid to a three-week low as Asian stocks and the Australian and New Zealand dollars, seen as proxies for Chinese growth, turned weaker. The data heightened pressure for China to provide fresh stimulus to prop up demand.

Moody’s also placed six banking giants, including Bank of New York Mellon BK.N, US Bancorp USB.N, State Street STT.N and Truist Financial TFC.N, on review for potential downgrades in a move that tempered a still strong outlook for US growth.

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Longer term, an issue is unlikely, but rising interest rates and regional banks’ exposure to commercial real estate has cast a cloud over the market, said Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan.

“Investors are using some of this news to trim positions that have done very well,” he said. “Markets are just going through a period where investors are questioning whether stock prices have run ahead of some of the fundamentals.”

In another potential banking woe, credit card delinquencies rose to a 11-year high in the second quarter as measured on a four-quarter average as Americans borrowed more than ever, the New York Federal Reserve Bank said in its quarterly household debt and credit report.

When student loan repayments resume October 1, discretionary spending will get cut, perhaps considerably, said Troy Ludtka, senior US economist at SMBC Nikko Securities Americas in New York.

“Americans are going to struggle to pay back auto loans, credit cards and increasingly mortgages, as a result,” he said.

MSCI’s US-centric gauge of global stock performance .MIWD00000PUS closed down 0.6 per cent. The pan-European STOXX 600 index .STOXX fell 0.23 per cent, with losses limited by drugmaker Novo Nordisk’s shares rising 17.3 per cent to a record high after a study showed its obesity treatment has a cardiovascular benefit.

Italy sent shockwaves across the European banking sector by setting a one-off 40 per cent tax on Italian bank profits reaped from higher rates, after reprimanding lenders for failing to reward depositors.

The euro zone bank index .SX7E fell 3.54 per cent to post its biggest single-day decline since the financial turmoil of March.

After a five-month rally which pushed both the benchmark S&P 500 .SPX and the Nasdaq Composite .IXIC within 5 per cent of their lifetime highs, August has now recorded five losing sessions out of six.

The benchmark S&P 500 .SPX and the Nasdaq Composite .IXIC have notched five losing sessions out of six in August, after a five-month rally had pushed both indices within 5 per cent of their all-time highs.

The Dow Jones Industrial Average .DJI fell 0.45 per cent, the S&P 500 lost 0.42 per cent and the Nasdaq Composite dropped 0.79 per cent.

The S&P 500 is trading around 18.5 times next year’s earnings, and “if we avoid a recession and analysts are right, then the stock market is more fairly valued,” Saglimbene said.

But earnings growth is again negative for the second quarter and is expected to be flat for the third quarter, making valuations for this year a little bit stretched, he said.

The dollar index =USD, a measure of the US currency against six peers, rose 0.45 per cent after the disappointing Chinese trade figures led investors to shift to safer assets.

News that Country Garden 2007.HK, China‘s biggest privately owned property developer, had not paid two dollar bond coupons due on Aug. 6, added to signs of severe stress in the property sector.

The euro EUR= fell 0.43 per cent to $1.0955.

US and European bond yields fell, reversing some of the increases seen over the last week.

The two-year US2YT=RR Treasury yield, which typically reflects interest rate expectations, unchanged at 4.758 per cent, while the yield on 10-year notes US10YT=RR fell 5.4 basis points to 4.024 per cent.

Oil prices edged higher as the U.S. Energy Information Administration projected GDP growth to rise by 1.9 per cent in 2023, up from a prior 1.5 per cent forecast. But bearish data on China‘s crude imports and exports offset optimism over the report. EIA/MO/R

US crude futures CLc1 rose 98 cents to settle at $82.92 a barrel, while Brent LCOc1 settled up 83 cents at $86.17.

Gold prices fell to a near one-month low as investors took refuge in the dollar after the weak China trade data, while caution prevailed ahead of US inflation figures on Thursday.

The Consumer Price Index (CPI) will be a key input into the Fed’s next interest rate decision in September.

US gold futures GCcv1 settled 0.5 per cent lower at $1,959.90 an ounce.