Tepid China data, US debt ceiling stalemate cap markets

·4-min read

Tepid Chinese economic data, haggling over United States government finances and uncertainty over interest rates have left investors on edge and stocks stuck in a range.

Oil prices were headed for their fourth weekly decline on Friday, as renewed economic concerns in the US and China revived anxieties about fuel demand.

The dollar was steady about a one week peak as investors bet that overnight data showing a slowing US economy would prompt the US Federal Reserve to pause rate hikes.

On a brighter note, Britain's economy grew in the first three months of the year - instead of the recession that was forecast in late 2022 - but recovery remains fragile.

The MSCI All Country stock index was flat and little changed for the week.

In Europe, the STOXX index of 600 companies edged up 0.4 per cent, putting it slightly firmer for the week as Richemont shares hit a record high on news of strong demand in Asia Pacific.

"It feels markets are uncertain over whether we are going into a sustained or temporary economic slowdown, so we are stuck in a bit of a twilight zone," said Mike Hewson, chief markets strategist at CMC Markets.

A generally positive earnings season is drawing to a close and the next batch of major central bank rate-setting meetings are a few weeks away, leaving investors searching for reasons to break out of ranges in stocks, oil, currencies and bonds, analysts said.

Nasdaq futures and S&P 500 futures were slightly firmer after US shares fell on Thursday on news that PacWest experienced a drop in deposits, reviving worries over regional US banks.

Shares of US big banks were also lower after the US Federal Deposit Insurance Corporation (FDIC) said big lenders would bear the cost of replenishing its deposit insurance fund caused by recent bank failures.

"We have had an aggressively sideways-moving market and people are looking for something to give it direction," said Mark Tinker, chief investment officer at Toscafund asset management in Hong Kong.

A meeting between US President Joe Biden and top representatives that had been scheduled for Friday has been postponed to early next week, with the IMF warning that a US default would have "serious repercussions" for the US economy.

"We have a lot of things to trip over in the next six months and that is why people are not committing to buying," Tinker said, pointing to the US debt ceiling stalemate, ending the use of Libor interest rates in June, and how the war in Ukraine unfolds.

But US data on Thursday added confidence the Federal Reserve is almost certain to pause its rate hikes at its policy meeting in June, with futures markets continuing to price in cuts of about 78 basis points by the end of the year.

China's economic recovery seems to be losing steam, with new bank loans tumbling in April, consumer prices rising at the slowest pace in more than two years and imports unexpectedly contracting, driving a plunge in commodity prices from copper and iron ore to oil.

China's blue-chips fell 1.3 per cent and looked poised to lose 1.7 per cent for the week, while Hong Kong stocks were down 0.5 per cent on the day.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.6 per cent and was headed for a weekly decline of 1.2 per cent.

Japanese shares outperformed, however, with the Nikkei climbing 0.9 per cent to its highest level since November 2021, as investors cheered announcements of increased shareholder returns during earnings season.

The US dollar benefited from safe-haven flows amid growth concerns and banking worries, holding onto slim gains against a basket of currencies.

The euro was trading at $US1.091 ($A1.632), down slightly on the day, and sterling was steady at $US1.2523 ($A1.8728).

Treasury yields were little changed on the day, with benchmark 10-year notes at 3.3973 per cent, while two-year yields were slightly weaker at 3.8931 per cent.

Oil is set to fall for a fourth straight week.

US crude futures edged 0.4 per cent lower to $US70.56 ($A105.52) per barrel, while Brent crude eased 0.5 per cent to $US74.60 ($A111.56) per barrel.

Gold prices were 0.3 per cent lower at $US2,008 ($A3,003) per ounce.

Bitcoin was down 2.3 per cent at $US26,355 ($A39,413).