Categories: Markets

Stocks Struggle as China Weakness Tempers Risk-On: Markets Wrap

(Bloomberg) — Luxury and commodity stocks pushed European stocks to their first decline in seven days on worries about China’s slowing economy. Investors are bracing for the latest batch of earnings as Wall Street banks hand over some of their best results even as other industries are poised to slump.

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Resource giants Anglo American Plc, Glencore Plc and Rio Tinto Plc fell after China’s growth for the second quarter missed estimates. In the luxury sector, LVMH and Hermes International collapsed. Richemont fell as much as 9% after the owner of Cartier reported an unexpected decline in American sales. Contracts for the S&P 500 and Nasdaq 100 were steady.

“Weak growth in China has been building in the background for months,” said Pooja Kumra, senior European rates strategist at Toronto Dominion Bank. “It’s clear that growth has not kept up with expectations in the first quarter.”

With its heavy reliance on the Chinese import market, Europe is particularly vulnerable. Companies tied to energy and raw materials together make up about 12% of the Stoxx Europe 600, and consumer discretionary industries account for 11%. Strategists at JPMorgan Chase & Co. expect further weakness in the region driven by lower bond yields as well as earnings disappointments.

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Earnings are set to provide important direction for the markets, with hundreds of companies reporting in the coming weeks. Companies in the S&P 500 are expected to post a 9% decline in earnings in the second quarter, making it the worst period since 2020, according to data compiled by Bloomberg Intelligence. In Europe, it could be even worse, with a projected 12% decline.

Big Wall Street banks have been a bright spot as rising interest rates have given JPMorgan a record profit, and some of its main rivals have announced stronger than expected income from lending. Meanwhile, last week’s economic data on consumer sentiment improved as inflation eased.

Bonds across Europe gained in US Treasuries as risk appetite curbed.

The dollar was little changed after a gauge of greenback strength snapped a five-day losing streak on Friday. The currency’s weekly slide has the index back near levels last seen in April 2022 as some strategists and investors suggest its long bull run is over.

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Shares in mainland China were the worst performers in Asia on Monday. Markets in Japan were closed for a holiday while sales in Hong Kong were canceled due to a typhoon. The onshore and offshore yuan weakened. The People’s Bank of China earlier extended support for the currency, but kept its medium-term lending facility unchanged Monday despite growing market calls for more stimulus.

The yen surged higher after Bank of Japan Governor Kazuo Ueda said uncertainty remained high in the US and the global economy. He also said there had been no significant change in the performance of Japan’s bond market since the previous monetary policy meeting in June.

Main events this week:

G-20 finance ministers and central bankers met in India, Monday
The President of the European Central Bank Christine Lagarde spoke, Monday
US empire manufacturing, Monday
US retail sales, industrial production, business inventories, cross-border investment, Tuesday
Eurozone, UK CPI, Wednesday
US housing begins Wednesday
China loan prime rates, Thursday
First US jobless claims, housing sales, Conf. Board leading index, Thursday
Japan CPI, Friday

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Some of the main movements in the markets:

Stocks