Global stocks ticked lower on Tuesday and bond yields dropped as investors assessed the latest weak economic data out of China and looked ahead to a key inflation reading from the U.S. on Thursday.
Meanwhile, euro zone bank stocks fell sharply after Italy approved a 40% windfall tax on lenders for 2023 and Moody’s cut the credit ratings of several small and mid-sized U.S. lenders.
MSCI’s index of global stocks edged 0.23% lower after climbing 0.5% on Monday. The MSCI Asia index, which excludes Japan, fell 1.11%.
Data showed China’s imports contracted by 12.4% in July, far more than forecasts for a 5% drop. Exports fell by 14.5%, compared with a fall of 12.5% tipped by economists.
European stock indexes opened lower, with the pan-European STOXX 600 down 0.26% and Germany’s DAX falling 0.33%. Britain’s FTSE 100 slipped 0.29% in early trading.
“It’s a bit of a mild, classic, risk-off type of day where you’ve got equity futures, led by Asia, heading lower and rates heading lower,” said Timothy Graf, head of macro strategy for EMEA at State Street. “The trade figures are absolutely terrible.”
Futures on the U.S. S&P 500 were down 0.29% after the stock index climbed 0.9% on Monday. Nasdaq futures were 0.39% lower.
Graf said more worrying news out of China’s enormous and shaky property sector was also likely weighing on markets.
Country Garden, China’s biggest privately owned property developer, said on Tuesday it had not paid two dollar bond coupons due on Aug. 6, adding to signs of severe stress in the sector.
U.S. and European bond yields fell, reversing some of the increases seen over the last week.
The U.S. 10-year Treasury yield was down 7 basis points to 4.012%, after touching its highest level since November on Friday at 4.206%. Yields move inversely to prices.
The dollar picked up against its major trading partners as investors shifted towards safer assets and was last 0.29% higher at 102.38.
Banks were the biggest fallers in the euro zone on Tuesday after Italy approved a 40% tax on lenders’ net interest margin, a measure of income derived from the gap between lending and deposit rates.
The euro zone bank index was down 2.67% and on track for its biggest daily fall since the financial turmoil of March.
Italy’s BPER banking group dropped 8.27%, while Intesa Sanpaolo fell 7.32%. Germany’s Commerzbank was 3.48% lower.
Adding to the gloomy mood in the financial sector was a report by Moody’s that cut the credit ratings of 10 banks by one notch. It also placed six banking giants, including Bank of New York Mellon, on review for potential downgrades.
Global investors are keenly awaiting Thursday’s U.S. inflation figures for July, which will be a key input into the Federal Reserve’s next interest rate decision in September.
U.S. inflation likely accelerated slightly in July to 3.3% year on year, while the core rate was likely unchanged at 4.8%, according to a Reuters poll of economists.
Headline inflation peaked at 9.1% in June 2022 but stood at 3% in June 2023.
Chinese inflation data is due on Wednesday, with economists predicting that the July figure will come in at minus 0.4% year on year.
The prospect of economic stimulus from China’s central government to reinvigorate a soft economy is still being contemplated by investors. Minor measures to help property markets have been delivered in the past fortnight, but no broad stimulus has been outlined.
U.S. crude oil fell 0.87% to $81.24 a barrel on Tuesday. Brent crude was 0.86% lower at $84.60 per barrel.
