On Monday, the faltering factory activity and consumer demand in China sent crude oil and copper prices tumbling, as investors became concerned about the state of the world’s second biggest economy.

Momentum sapped

European bourses also saw their momentum sapped due to a weakening in US stock index futures, as global shares hit a pause after recording gains for four straight weeks.

This was due to hopes that inflation in the US may have peaked, which would convince the US Federal Reserve to slow down and not hike the interest rate aggressively in the next month.

While gold declined, the US dollar saw a boost due to China’s woes. There was a 0.4% decline in S&P 500 and Nasdaq futures, just before the opening bell of Wall Street.

Investors are set to scrutinize earnings from prominent retailers like Target and Walmart for any indications of a slowdown in US consumer demand.

There was not that big of a change in the MSCI’s index of global shares, which put a stop to its advance of about a month.

It helped reduce the decline of the benchmark index for this year to around 13%.

China’s situation

The Chinese central bank took the unexpected decision of reducing lending rates in order to boost demand.

This was after data showed that the economy had slowed down unexpectedly in July, as retail and factory activity saw some pressure due to a property crisis and the country’s zero COVID policy.

Market analysts said that China’s situation is a bit different from the rest of the world. This is because they are dealing with a self-imposed recession brought on by their zero COVID policy.

They further said that if markets are to see another leg down, it would probably be driven by the US Fed. Analysts further said that quantitative tightening is expected to be seen in September.

When it does happen, it would reduce liquidity in the markets.

Expectations from the Fed

Markets are divided about the Fed’s decision, as it is uncertain whether the US central bank will increase the interest rate by 50 basis points, or by 75 basis points in its meeting next month.

The minutes of its previous meeting will be published on Wednesday and investors are hoping that they show a pivot in the central bank’s stance about rate hikes.

However, there is a possibility that these hopes could be dashed, but analysts said that they did not believe it would happen.

There was a 0.14% rise in the European STOXX 600 index, as it rose to 441.9 points. This still marked a fall of 10% from its January high.

The reduction in Chinese interest rates saw the blue chips drop by 0.13%, while there was also a decline in bond yields and the yuan.

There is still no easing in geopolitical risks, as a delegation of lawmakers from the United States goes on a two-day trip to Taiwan.

The disappointing Chinese data gave the US dollar, which is regarded as a safe haven, a good lift.

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