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Global markets drop as China stimulus hopes fade

LONDON (AFP) – Asian and European stocks fell yesterday as investors await more interest-rate decisions this week and fret over the lack of a stimulus plan to kickstart the Chinese economy.

Equities enjoyed a strong run-up last week, partly on expectations that Beijing would unveil economic measures following two interest rate cuts.

Investors expressed disappointed over the lack of new policy announcements yesterday, while sentiment was subdued with United States (US) markets shut for a public holiday.

Markets faced “continuing concerns about China’s faltering recovery” following the end of Covid restrictions, said AJ Bell investment director Russ Mould.

“The post-Covid surge anticipated in China appears to be losing momentum and there is uncertainty around how the authorities in the country might look to get things moving in the right direction.”

Oil prices also stumbled on worries over energy demand from China, a key crude consumer.

The foreign exchange dealing room of the KEB Hana Bank in Seoul, South Korea. PHOTO: AP

On a positive note, hopes for a thaw in China-US relations were boosted as US Secretary of State Antony Blinken held meetings with President Xi Jinping and top envoy Wang Yi in Beijing.

Traders were on tenterhooks before interest rate decisions due on Thursday in Britain, Norway and Switzerland following last week’s US pause and eurozone hike. The Bank of England is widely expected to lift its key interest rate for a 13th time in a row as it struggles to bring down high inflation.

Investors are nervous over the size of the hike, as they also wait on UK inflation data due tomorrow.

The yield on Britain’s two-year bond jumped above five per cent yesterday, striking a level last seen during the 2008 global financial crisis.

Markets are also uneasy because commercial banks are ramping up their own interest rates on home loan products, in anticipation of more BoE hikes.

In turn, that threatens to slam consumer spending and worsen the UK’s cost-of-living crisis.

“The current reaction on markets could do the BoE’s job for it, with mortgage deals already shooting up in advance of the bank’s decisions, sucking more demand out of the economy,” said head of money and markets Susannah Streeter at stockbroker Hargreaves Lansdown.

The European Central Bank had last week hiked eurozone borrowing costs to a 22-year peak to dampen inflation but the US Federal Reserve hit pause, while the Bank of Japan maintained its ultra-loose monetary policy.

Investors will be closely watching Fed chief Jerome Powell’s twice-yearly testimony to Congress this week, hoping for clues about the policy board’s thinking.