Bruised stocks find support as growth fears dent in commodities

Men wearing protective masks amid the coronavirus (COVID-19) outbreak use cell phones in front of an electronic sign displaying Japan’s Nikkei index outside a real estate agency in Tokyo, Japan, June 16, 2022. REUTERS/Kim Kyung-Hoon

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SINGAPORE/TOKYO, June 24 (Reuters) – Global stocks and bonds headed towards their first weekly gains in a month on Friday, with growth concerns dampened by hopes falling commodity prices could help curb runaway inflation.

MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) rose 1.4% Friday, aided by short sellers pulling out of Alibaba (9988.HK) – which rose nearly 7% – amid hints that China’s technological crackdown is on the wane.

Japan’s Nikkei (.N225) rose 1.2% for a weekly gain of 2%, while S&P 500 futures extended overnight gains by 0.76%. EuroSTOXX 50 futures were up 1% and FTSE futures were up 0.6%.

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The week was marked by sharp falls for commodities amid concerns that the global economy looks shaky and that rate hikes will hurt growth – which in turn is also prompting traders to scale back some bets on the size of rate hikes.

Copper, a paragon of economic output with its wide range of industrial and construction applications, is headed for its strongest weekly decline since March 2020. It fell on Friday in Shanghai, falling about 8% this week.

Oil is also heading for a weekly loss. Brent crude futures were down 2.5% weekly to $110.35 a barrel, while benchmark grain prices fell on Chicago wheat by more than 8% for the week.

The declines provided some relief in equities, as energy and food were the drivers of inflation. After heavy recent losses, the MSCI World Equities Index (.MIWD00000PUS) is up 2.3% this week, poised for its first weekly gain since May.

“While market concerns about an abrupt slowdown are the culprit behind the recent declines in commodity prices, lower commodity prices feel like they are just what the doctor ordered for the global economy,” said NatWest market strategist Brian Daingerfield.

“So much of our hard landing fears are related to commodity price concerns.”

Soft data during this week was to blame.

Polls of factory activity in Japan, Britain, the eurozone and the United States all weakened in June, with US manufacturers reporting the first outright drop in new orders in two years amid declining confidence. read more

Bonds rebounded hard in hopes that bets on aggressive rate hikes should be curtailed, with German two-year yields falling 26 basis points on Thursday, the biggest drop since 2008.

The benchmark yield on ten-year government bonds fell by 7 basis points on Thursday and remained stable at 3.0908%.

The US dollar has fallen from recent highs, but not too far, as investors remain cautious. It was fairly stable last time at $1,05395 per euro and bought 134.73 yen.

The battered yen has stabilized this week and received some support on Friday from Japanese inflation which surpassed the Bank of Japan’s 2% target for the second straight month, putting more pressure on its ultra-easy stance. read more

Speakers from the European Central Bank and the Federal Reserve will be closely monitored later in the day, as will UK retail sales and German business confidence. Beyond that, the biggest concern is what it all means for business performance.

“Second quarter earnings reports will send shockwaves to the market as the earnings outlook has not materially deteriorated so far, further raising concerns about a recession,” said Charu Chanana, market strategist at Saxo brokerage in Singapore.

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Editing by Jacqueline Wong

Our Standards: The Thomson Reuters Trust Principles.

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