Chinese retail sales slowed down in July.
AFP via Getty Images
U.S. stocks pared their losses in midday trading Monday after tumbling from historic highs set last week. Wall Street kicked off this week weighing geopolitical concerns alongside global economic data. Top of mind for investors was the worsening situation in Afghanistan as well as signs of a slower economic recovery in China.
But by midday, losses were cut by roughly half across major indexes. The Dow Jones Industrial Average declined 51 points or 0.2%, while the S&P 500 fell 0.3% and the Nasdaq Composite dropped 0.9%. The 10-year Treasury yield fell to 1.248%.
Chinese data released Monday showed that both factory output and retail sales slowed down in July, compared with June, and came in below analysts’ expectations. The results dominated market sentiment and dragged Asian markets down as well as the tech-heavy Nasdaq.
“The Chinese data overnight is going to feed into the near-term uncertainty in the country as it desperately tries to get its Covid outbreak under control early,” Craig Erlam, senior markets analyst at OANDA, wrote Monday.
Major Chinese indexes bucked the trend due to “an overnight operation by the [Chinese central bank] that saw the central bank roll over much of its medium-term policy loans coming due,”Deutsche Bank analysts wrote.
The Shanghai Composite was mostly stable, and the CSI 300 of blue chips was down 0.1%. Hong Kong’s Hang Seng closed down 0.8%, and the Nikkei 225 fell 1.6%, even though the Japanese economy grew more than expected in the second quarter of the year.
The fast-spreading Delta variant of the coronavirus that causes Covid-19 once again contributed to the gloom in Monday’s trading, with investors fearing governments in the region might resort to more and tighter restrictions to fight the pandemic.
“Consumers in advanced economies rushed to spend savings as restrictions eased. In China there has been an increased desire to save in the wake of Covid,” noted UBS chief economist Paul Donovan.
Investors are also watching as the Taliban seize power in Afghanistan. On Sunday, the Taliban entered Kabul after President Ashraf Ghani left the country. The U.S. sent additional troops to assist in the chaotic evacuation of Westerners from the capital city. The Wall Street Journal on Monday reported that at least three people were killed by gunfire at the passenger terminal of Kabul’s international airport where thousands of Afghans have huddled in hopes of finding a flight out of the country.
“For [President] Biden, the developments in Afghanistan have created some unwelcome headlines just as further progress was being made on his economic agenda,” said Deutsche Bank’s Jim Reid, referencing the Senate passage of the bipartisan infrastructure bill last week.
The events in Afghanistan are a “political negative for Biden which could hurt the chances any infrastructure bill is passed,” wrote The Seven Report’s Tom Essaye.
Eyes will be on the Federal Reserve this week as minutes from its July meeting are set to be released Wednesday. The Wall Street Journal reported Monday that Fed officials were considering ending asset purchases by the middle of next year. The Fed would begin pulling back on its bond-buying in the next three months, the report said, paving the way for the Fed to begin raising interest rates.
Globally, oil and mining stocks were down roughly 1% on the Chinese news, and stocks of companies most dependent on the Chinese market were among the top decliners—such as luxury group LVMH Moët Hennessy Louis Vuitton, down 2.1%, or Gucci owner Kering, down 4.7%.
The pan-European STOXX 600 index meanwhile was down 0.5%, with London’s FTSE 100 down 0.9%, and France’s CAC 40, down 0.8%.
French car parts supplier Faurecia jumped more than 12%, after it agreed to acquire a majority stake in German automotive lighting group Hella. German airline Lufthansa was down by nearly 4%, after the German government said it would sell up to a fourth of its 20% stake in the company.
T-Mobile US (ticker: TMUS) fell 3.3% after revealing a data breach.
CureVac (CVAC) gained 1% after the company and its partner GlaxoSmithKline said preclinical study on a Covid vaccine in animals performed well. Glaxo stock has declined 0.4%
NIO (NIO) dropped 6.9% after reports that a passenger died in an accident while using the company’s autopilot feature.
Sonos (SONO) jumped 8.6% after a jury ruled that Alphabet’s (GOOGL) Google had infringed on its patents. Alphabet stock declined 1.4%.
Tencent Music Entertainment Group (TME) slipped 8.4% after delaying its Hong Kong IPO.
Write to Carleton English at carleton.english@dowjones.com, Pierre Briançon at pierre.briancon@dowjones.com and Ben Levisohn at ben.levisohn@barrons.com
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