Strong US retail sales data weighs on Wall Street stocks

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Global stocks fell on Tuesday, as stronger than expected US retail sales data and a surprise rate cut in China weighed on investor sentiment.

Wall Street’s benchmark S&P 500 fell 0.9 per cent in early trading, extending losses from the previous day, while the tech-focused Nasdaq Composite lost 0.8 per cent.

The declines echoed falls in Europe, where the region-wide Stoxx Europe 600 was down 1 per cent, France’s Cac 40 was 1.2 per cent lower and Germany’s Dax traded down 0.9 per cent.

Yields on US government debt spiked higher, with the 10-year yield hitting a 10-month high, before falling back.

The moves came after fresh data on Tuesday showed the value of US retail purchases increased 0.7 per cent in July, up from 0.3 per cent in the previous month and well above the 0.4 per cent consensus forecast.

At the same time, shares of Home Depot rose 1.7 per cent after the consumer goods giant reported its sales declined less than expected in the second quarter, as American consumers continued to spend despite the pressure of inflation and high borrowing costs.

Signs of resilient consumer spending, which could mean interest rates stay higher for longer, come more than a year after the US Federal Reserve began its aggressive monetary tightening campaign, which took the federal funds rate to a level not seen in the past 22 years.

In the UK, yields on two-year gilts rose 0.1 percentage points to 5.16 per cent, their highest level in a month, while yields on 10-year gilts edged up 0.06 percentage points to 4.63 per cent, after UK wage growth hit a record annual pace in the three months to June, adding to signs of persistent inflationary pressures.

“UK wage growth has come in quite a bit higher than expected, and that should all but cement a September rate hike from the Bank of England,” said James Smith, developed markets economist at ING.

Investors will be paying close attention to UK inflation figures due on Wednesday, with the BoE having so far struggled to keep up with its peers in the US and Europe in the global campaign to cool prices. Sterling rose 0.4 per cent against the dollar to $1.2731.

Meanwhile, Asian equities sold off as investors digested an unexpected move by the People’s Bank of China to lower its one-year medium-term lending facility rate, which affects loans to financial institutions.

China’s benchmark CSI 300 index of Shanghai- and Shenzhen-listed stocks fell 0.2 per cent, while Hong Kong’s Hang Seng declined 1 per cent, as downbeat data continued to weigh on investor sentiment.

The cut, by 0.15 percentage points to 2.5 per cent, took the rate to its lowest level since it was launched in 2014. The overwhelming majority of the market expected rates to remain unchanged.

The surprise policy move came after new data in China pointed to weak consumer and business activity in July, adding to a series of gloomy data releases last week that indicated the country had slipped into deflation and was struggling to recover from three years of severe Covid-19 lockdowns.

“Today’s data add to evidence that China’s economy is stalling, despite the gradual ramp-up of policy support,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics, noting that the rate cut was probably “an attempt to shore up confidence, both in the financial markets and the broader economy”.

The Chinese renminbi declined 0.3 per cent against the dollar to trade at 7.2838, its weakest level since November.