Global stocks struggle after US economy posts record contraction

Global stocks and the dollar were under pressure on Friday after the US recorded its largest gross domestic product contraction in postwar history, reinforcing fears that an economic recovery was losing momentum.

Japan’s benchmark Topix index fell 2.3 per cent in afternoon trading while Australia’s S&P/ASX 200 dropped 1.5 per cent. The CSI 300 index of Shanghai- and Shenzhen-listed stocks was flat after rising by 1.5 per cent in morning trading. Hong Kong’s Hang Seng was 0.2 per cent higher.

Meanwhile, the dollar came under pressure and haven assets strengthened. The greenback, as measured against a basket of its trading peers, weakened 0.4 per cent. Japan’s yen rose 0.5 per cent to ¥104.26 per dollar, a more than four-month high. Gold was up 0.7 per cent to $1,969.29 per troy ounce.

The yields on US 10-year Treasuries fell two basis points to 0.525 per cent. Bond prices rise as yields fall.

Overnight, data showed that the US economy shrank at an annualised rate of almost 33 per cent in the second quarter owing to the impact of the coronavirus lockdowns, which was slightly better than economists’ forecasts.

US jobless claims rose for the second week in a row, underscoring how the recovery in the world’s biggest economy could be bumpy.

The record fall for the US economy “does not change our expectations for a strong bounce-back” in the third quarter, said Veronica Clark, an economist at Citigroup Global Markets.

The S&P 500 closed 0.4 per cent lower, even as big tech companies including Amazon, Apple and Facebook posted blowout quarterly results.

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Futures markets tipped the US benchmark to climb 0.2 per cent when trading begins later on Friday while the FTSE 100 was set to gain 0.4 per cent.

Also on Friday, official data showed that Chinese factory activity quickened in July, marking the fifth straight month of expansion.

However, analysts cautioned that China’s economic recovery from Covid-19 could soon lose momentum.

“The current rapid pace of recovery is likely to slow in the coming months as the initial boost from reopening businesses fades,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

But a gradual recovery in foreign demand and policy support from Beijing “will keep output on course to return to its pre-virus trend by the end of this year”, he added.

Oil prices edged higher after a sell-off prompted by fears that demand for crude could be weakening. Brent, the international benchmark, rose 0.5 per cent to $43.14 per barrel, while US marker West Texas Intermediate rose by the same degree to $40.11.



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