Stocks stalled in Asia as global markets were permeated with fears of a global economic slump, commodity prices slid downward and the dollar was bolstered. Meanwhile, Japan shares dipped, as South Korea and Australia picked up. The S&P 500 closed up on the performance of tech stocks like Tesla and Apple.
Monday’s US data showed manufacturing cooling quickly, and homebuilder sentiment was slumping, after reports showing China’s economy weakening. Investors seeking havens lowered 10-year Treasury yields to 2.77% and set off purchases of Australian debt.
The offshore yuan and Australian dollar endured losses, however South Korea’s won was the worst performer Bloomberg noted in an Asian basket they track. Oil dropped back below $89 per barrel on demand worries, as well as in anticipation of a return of Iranian supplies to the market.
Global equities had been buoyed to a 13% rebound from June lows by cooling inflation and the hopes for less aggressive policy tightening going forward. But now the danger going forward is if prices remain elevated, that could lead to the need to maintain tight policy, and that could trigger a recession.
Margie Patel, senior portfolio manager at Allspring Global Investments LLC, said in an interview that the market is still, “breathing a little sigh of relief thinking the Fed is not going to be as aggressive in tightening.” She added that although the global outlook is more recessionary, in the US the fundamentals are better and the big risk to the economy will be if the Federal Reserve hits the brakes too hard on monetary policy.
In New York state, US data showed that manufacturing activity dropped by the second most going back to 2001. Homebuilder sentiment dropped for an eight straight month, which was the worst stretch going back to the 2007 housing collapse.
This all came on the heels of China’s central bank unexpectedly cutting interest rates Monday, due to figures coming out showing the nation’s economic slowdown deepened in July as manufacturing orders plummeted.
Shane Oliver, head of investment strategy at AMP Services Ltd., said in an interview, “The risk of the markets going below the June lows is quite high,” due to “weaker earnings growth ahead in the US,” possibly heralding our own economic slowdown.
