Oil prices fell nearly five percent on Monday on data that showed China’s economic recovery was lagging under Covid-19 restrictions and a slump in the real estate sector.
Stock markets were mostly flat and the dollar traded mixed as investors welcomed signs of cooling in US inflation, which nevertheless remains at the highest level in decades.
“It was a rough start to the week in the financial markets as the eternal optimism of investors collided with the reality of Chinese economic data,” noted Oanda senior market analyst Craig Earlam.
China’s central bank unexpectedly cut key interest rates on Monday as a raft of data showed weakness in the world’s second-largest economy.
Figures showed that growth in industrial production and retail sales in China came in lower than expected in July.
Industrial production rose 3.8 percent from a year earlier, but was down from 3.9 percent in June and well below analysts’ forecasts.
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“The risk of stagflation in the global economy is growing, and the basis for the recovery of the domestic economy is not yet solid,” the National Bureau of Statistics of China warns.
Stagflation refers to long-term high inflation combined with rising unemployment and weak growth.
Beijing’s steadfast adherence to a zero-spread strategy for COVID-19 has held back the economic recovery as snap lockdowns and prolonged quarantines undermine business activity and the recovery in consumption.
July’s retail figures confirmed how fragile consumer confidence remains, CMC Markets analyst Michael Hewson said.
“This weakness in China’s economy is at odds with the struggle to adapt to a zero-covid-19 policy, which the government shows little sign of relaxing amid rising cases,” Hewson said.
“Problems in the property sector are also not helping, with many homebuyers stopping mortgage payments in protest at delays in building new homes.”
Hong Kong ended down 0.7 percent, while Shanghai closed slightly lower.
Tokyo was the standout in Asian trade, rising 1.1 percent as GDP data showed the Japanese economy was recovering after the government lifted Covid-19 restrictions on businesses.
European shares were steadily nearing the halfway mark as investors await minutes from the Fed’s final meeting in July on Wednesday to learn about the US central bank’s interest rate plans.
Slowing inflation in the US has fueled debate over whether the Fed may soon back away from its recent stance of aggressively raising borrowing costs.
Markets are concerned that after consecutive increases of three-quarters of a point, a further increase of a similar magnitude could halt the economic recovery.
Key figures around 11:00 GMT
- Brent North Sea crude fell 4.8% to $93.46 a barrel
- West Texas Intermediate: Down 4.5 percent to $87.99 a barrel
- London – FTSE 100: down 0.1 percent to 7,495.11
- Frankfurt – DAX: Up 0.1 percent to 13,806.27
- Paris – CAC 40: up 0.2 percent to 6,566.28
- EURO STOXX 50: Up 0.2 percent to 3,782.95
- Tokyo – Nikkei 225: Up 1.1 percent to 28,871.78 (close)
- Hong Kong – Hang Seng: down 0.7 percent to 20,040.86 (close)
- Shanghai – Composite: FLAT at 3276.09 (close)
- New York – Dow: up 0.1 percent to 33,336.67 (close)
- EUR/USD: Down at $1.0203 from $1.0261 on Friday
- Pound/Dollar: Down at $1.2079 from $1.2135
- Euro/pound: down 84.46p from 84.53p
- USD/JPY: Falling to 133.35 from 133.50 yen