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Oil and stocks decline after weaker than expected economic data

Oil prices and stocks fell on Monday as disappointing economic data from the US and China complicated the economic outlook, driving a shift away from riskier assets.

International oil benchmark Brent crude dropped 5 per cent to $93.16 a barrel as gloomy economic reports from the world’s two leading economies added to worries that a slowdown in global growth will hit industrial and consumer demand. US marker West Texas Intermediate fell by a similar margin to $87.86, its lowest level since February.

On Wall Street, US shares slipped after the opening bell, with the S&P 500 dropping 0.5 per cent and the technology-heavy Nasdaq Composite sliding 0.2 per cent. The broad S&P had on Friday closed out its fourth consecutive week of gains.

Monday’s weak performance came after Chinese economic data showed that retail sales rose 2.7 per cent year on year in July, while industrial production was 3.8 per cent higher. Economists had forecast larger increases of 5 per cent and 4.6 per cent respectively.

Analysts at Goldman Sachs said the data indicated that the growth recovery since lockdowns in April and May spurred by the Omicron Covid variant “stalled and even slightly reversed in July”.

“This points to still-weak domestic demand amid the sporadic Covid outbreaks, production cuts in some high-energy consuming industries and [the] adverse impact of recent risk events in the property sector,” they added.

In a bid to boost growth, China’s central bank on Monday cut its medium-term lending rate, through which it provides one-year loans to the banking system, by 0.1 percentage points to 2.75 per cent.

“Usually the Chinese economy has been an important pillar in supporting the global economy. This time, the US and Europe are showing signs of slowing and possibly moving into a recession but the backdrop — China — isn’t there to support the global economy,” said Aneeka Gupta, director of macroeconomic research at WisdomTree.

Later in the day, a New York Federal Reserve survey of manufacturers registered minus 31.3 for August from 11.1 the previous month. Economists polled by Reuters had forecast a reading of 5. The unexpected move in the Empire State gauge marked the second largest monthly fall for the index on record.

Line chart of Empire state general business conditions index showing New York factory activity contracts sharply in August

In bond markets, the yield on the 10-year US Treasury note fell 0.08 percentage points to 2.77 per cent as the price of the benchmark instrument rose. US government debt is typically seen as a haven asset in times of economic stress.

Treasury prices had climbed last week when fresh figures offered signs that inflation in the world’s largest economy may be steadying, a trend closely watched by investors as they attempt to assess how far the Fed will raise interest rates to curb rapid price growth.

Market participants on Wednesday will scrutinise minutes of the Federal Open Market Committee’s latest monetary policy meeting for clues about the central bank’s tightening plans, after Fed officials suggested last week that encouraging data did not necessarily mean inflation had been tamed.

The EU, Japan and Canada will also publish inflation data this week, while results from companies such as Walmart and Target will provide further indicators about US consumer sentiment. Weak earnings from the bellwethers in May sparked some of the biggest declines for US stocks this year.

In currency markets, the dollar gained 0.6 per cent against a basket of six leading currencies. In Europe, the regional Stoxx 600 share index traded broadly flat. Elsewhere, Chinese shares slipped, with the CSI 300 gauge of Shanghai and Shenzhen-listed stocks closing down 0.1 per cent and Hong Kong’s Hang Seng index sliding 0.7 per cent.

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