LONDON – Global equities dipped on Thursday, reflecting a drop in Asia as a result of China’s broadening crackdown on the internet sector and concerns about the country’s economic recovery, while oil prices slumped due to supply uncertainties. Markets are still being driven by the pace of economic recovery from the COVID-19 pandemic, as well as its impact on inflation and central bank policymaking, with the US Federal Reserve signaling no immediate plans to tighten monetary policy overnight.
Later in the afternoon, all eyes will be on the European Central Bank, which is expected to issue a strategy update that could allow for higher inflation.
In early European trading, the MSCI’s benchmark index of global stocks was down 0.4 percent, matching a 1.6 percent drop in the corresponding index of Asia shares outside Japan to its lowest level since mid-May.
China’s efforts to reign in its internet behemoths have fueled this, with the most recent example being Didi, a U.S.-listed company that was ordered to remove its app off shop shelves.
Despite the decrease, the global index is still trading inside a broad trading range that has been in place since late June and is only below its all-time high. Meanwhile, the STOXX Europe 600, a broad index of Europe’s largest corporations, was down 1.2 percent.
In addition to the tech crackdown, Chinese officials’ advice toward rate cuts has alarmed some investors by underlining fragility in China’s economy – sluggish credit growth and slow demand – which threatens the global recovery’s pace.
On Wednesday, China’s cabinet announced that officials will employ timely reductions in the bank reserve requirement ratio (RRR) to help the real economy, particularly small businesses.
On Thursday, the yield on 10-year Chinese sovereign paper fell to its lowest level in nearly a year, falling to 2.993 percent, the lowest since August.
Global bond prices surged more broadly, with the 10-year note up almost 4 basis points, continuing price swings observed earlier in the week and prompting “serious disagreement” over their origin, according to Deutche Bank analyst Jim Reid.
Some see the increase as an indication that the market is re-pricing the risk of the economy entering secular stagnation following the epidemic, while others point to technical factors such as less Fed supply and higher demand to buy.
Despite the drop in US yields, Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, expects the benchmark to rebound, according to the Swiss adviser to many of the world’s super-rich.
“We estimate the 10-year yield to approach 2% by the end of the year, driven by the expectation of a Fed taper announcement in the coming months, sustained economic growth supporting continued strength in nonfarm payrolls, and further reopening.”
The dollar fell 0.2 percent against a basket of key peers in currency markets. Bitcoin sank to a more than one-week low of US$32,623 as a result of harsh statements from Chinese regulators. Oil was under pressure as a wave of new virus diseases swept Asia and the world, potentially reducing demand, while traders predicted a likely increase in supply following the breakdown of producer talks. Brent crude futures were down 1.1 percent at US$72.64 a barrel, while US crude was down 1.4 percent (Additional reporting by Tom Westbrook, Yoruk Bahceli and Brenna Hughes-Neghaiwi; editing by Shri Navaratnam, Kim Coghill, Angus MacSwan and Barbara Lewis)/n
