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The stocks started the second half timidly under clouds of growth

A man wearing a protective mask walks past an electronic board showing the index of Russia’s trading system (RTS), Japan’s Nikkei index and the Dow Jones Industrial Average amid the outbreak of the coronavirus disease (COVID-19). to be displayed at a real estate agent in Tokyo, Japan, February 25, 2022. REUTERS/Kim Kyung-Hoon

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  • MSCI AxJ Index unchanged, Hong Kong on holiday
  • US Dollar Repairs Plunge Overnight; DXY at 104.83
  • China PMIs turn positive and markets steady

SINGAPORE, Jul 1 (Reuters) – Bonds slipped, the dollar edged up slightly and Asian stock markets got off to a shaky start to the second half on Friday as investors grow increasingly nervous about the global economic outlook.

MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) was flat as trading was thinned out by a public holiday in Hong Kong.

Japan’s Nikkei (.N225) fell 0.7%. Treasuries fell, lifting yields slightly along the curve, and US stock futures fell about 0.2%.

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The S&P 500 ended its worst first half since 1970 overnight, and the Treasury market has taken such a hit in the last six months that Deutsche Bank estimates its performance is its worst in more than two centuries. Continue reading

Inflation and central bank responses to it are to blame. The focus is now on any clues as to whether it has peaked. Euro-zone consumer price data is due later on Friday and the July number in the United States will be a blockbuster for financial markets.

According to data released on Thursday, German inflation slowed unexpectedly last month, as did the pace of US consumer spending in May – prompting some easing of rate hike bets but also adding to concerns about economic weakness.

“Many investors want a clear outlook,” said Steven Wieting, chief investment strategist at Citi Global Wealth Investments, but the future doesn’t envisage a steady, reliable recovery.

“(2020) was a clear time where the economy was depressed that we could put money into this with a lot of confidence. We can’t say that now,” he said.

Growth concerns pushed oil lower with Brent crude futures last trading at $109.76 a barrel.

Uncertainty has left the US dollar behind, even as markets have scaled back aggressive interest rate forecasts and more recently have even priced in Federal Reserve rate cuts as early as mid-2023.

The dollar had its best quarter since 2016 for the three months ended June and the euro and yen were losers. The greenback was firm on Friday and headed for a weekly gain, with the dollar index up 0.7% on the week to 104.830.

CHINA BRIGHT

Amidst the darkness, however, China has suddenly become a bright spot. Mainland markets are up in the last quarter, recovering about 20% from April lows. Continue reading

China is emerging from lockdown, has no inflation problem and factory activity data showed a welcome return to growth this week, with Caixin PMI data on Friday showing June brought the fastest expansion in manufacturing in 13 months. Continue reading

The Shanghai Composite (.SSEC) and blue-chip CSI300 (.CSI300) are down about 0.3% on Friday, but they will each post five straight weeks of gains.

The yuan has stabilized and that has helped some regional currencies, although the dollar remains in demand. Chinese President Xi Jinping’s visit to Hong Kong was the focus of attention on Friday. Continue reading

Among the majors, the dollar rose to $1.0469 per euro, up about 0.3% against the Aussie to $0.6883.

It bought 135.64 yen after rising 11.6% in the June quarter. The strong dollar and rising US yields have kept non-yielding gold under control and it drifted towards a weekly loss of $1,805 an ounce on Friday.

Another notable outperformer in Asia was Indonesia, where equities (.JKSE) are up more than 5% for the year and could continue to benefit as foreign money flows back into emerging markets.

“While clients tend to stay in de-risking mode, money needs to start flowing back into the asset class at some point,” said David Beale, vice chair of global emerging markets institutional client coverage at Deutsche Bank in Singapore.

“Clearly, any signs of inflation plateauing and rate hikes starting to be priced out could signal a cheaper path,” he said. “Next month’s US CPI print will be crucial in this regard.”

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Edited by Shri Navaratnam

Our standards: The Thomson Reuters Trust Principles.

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