Investors Fear Slower Global Growth

Global stocks fell on Wednesday after faltering growth in China and Europe heightened concerns about broader economic momentum. MSCI’s broadest gauge of world stocks slipped 0.1%. The dollar firmed as investors weighed up the outlook for Federal Reserve interest rates.

Investors were also spooked by news that more than expected Chinese imports and exports fell in July, highlighting a broader slowdown in the world’s second-largest economy. “The data suggest the recovery remains in the early stages,” said Zhiwei Zhang, president of Pinpoint Asset Management. “We believe domestic demand is being weakened by slowing housing market and the lingering effects of the Covid-19 pandemic.”

The global index has fallen nearly 18% over six months, tripping into bear market territory in May. That’s a 20% drop from its January peak and the steepest slide since early 2009.

Several factors have sparked the slide, including slowing consumer spending in developed markets, slumping crude oil prices, fears of another recession in the United States, and tighter monetary policy in Asia. But the most recent jolt came on Tuesday when the International Monetary Fund warned that global growth was likely to be weaker than expected this year and next.

The IMF’s gloomy forecast rekindled worries about the pace of interest rate increases in the United States, which have been driving up borrowing costs to rein in inflation and boost growth. Its gloomy outlook added to investor anxiety over the banking sector’s health after the failure of Silicon Valley Bank and Signature Bank last month and Moody’s downgrading several mid-sized U.S. banks this week.

On Wednesday, the FTSE 100 index of European shares lost ground for a sixth consecutive session as investors profited from gains in the previous two sessions. The DAX was the most significant loser, falling 1.1%, while the CAC 40 was down 0.8%.

Investors were also cautious ahead of a congressional vote to raise the U.S. debt limit later this week. The vote is widely expected to pass, though some investors are nervous about possible disruptions in the credit markets if it does not.

Asian stock markets were also lower, with Hong Kong’s Hang Seng index ending 1.7% and Japan’s Nikkei 225 slipping 1.5%. Australia’s S&P/ASX 200 was little changed, with the weakest yen since November helping to boost exporters and energy stocks.

U.S. Treasury yields were also lower, with the 10-year note down 1.8 bps to 2.75%. The yield was also below the critical 3-month mark, which could entice investors to take out longer-term loans, potentially pushing up borrowing costs. The market is also facing a glut of new corporate bond issuance this week, with almost $36 billion due to hit the markets and $120 billion in investment-grade dollars scheduled to come to market.

Vox Weekly

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