(Bloomberg) — Stocks and bonds declined as concern grew that China’s faltering recovery and debt problems will spread to the global economy.
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Instead of reassuring investors, China’s surprise rate cut only deepened anxiety about policy steps to revive growth, with commodity producers leading a decline of 0.7% in Europe’s Stoxx 600. US equity futures pointed to a drop at the open.
Global bonds retreated. Treasury yields extended their climb, with the 10-year rate trading 4.22% for the first time since November. UK gilts fell and the pound climbed after wage growth accelerated to the strongest pace on record.
China’s emergence from pandemic lockdowns has been disappointing and fanned concern that the world’s economic engine is sputtering. The nation is struggling to contain a potential default at developer Country Garden Holdings Co. after it missed payments on its debt.
“China property worries and today China unexpectedly cutting two key rates are sending a clear signal that growth may not reach its GDP guidance of 5% by yearend,” said Stephane Ekolo, strategist at TFS Derivatives. “Hence global growth is likely to suffer and the probability of a real slowdown or recession is growing.”
China’s rate cut came amid a raft of news depressing risk appetite, from a devaluation in Argentina to Russia’s rate hike to stem a slide in the ruble.
Russia raised its key rate to 12% from 8.5% after the ruble weakened past 100 per dollar on Monday. Argentina’s already-distressed debt slumped after a populist who vowed to burn down the central bank won surprisingly strong support in a primary vote. Its under-siege government submitted to a 18% currency devaluation.
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The Chinese currency slipped as much as 0.5% after policymakers lowered the rate on one-year loans — known as the medium-term lending facility — by 15 basis points to 2.5%.
Data for July underscored the economic slide, showing growth in consumer spending, industrial output and investment dropping…