Bond yields slip, stocks suffer on cooling China data

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SHANGHAI/ LONDON/ NEW YORK
World stocks struggled and safe haven bets were back in play on Friday with German bond yields plumbing record lows as Chinese data rekindled woes about the health of the global economy and fears of a new U.S.-Iran confrontation intensified. Data from Beijing painted a fairly gloomy picture of the world’s second largest economy as the trade war with the United States starts to bite. May industrial output growth slowed to a more than 17-year low, well below expectations, while fixed-asset investment also fell short of forecasts. Expectations for more stimulus in China are growing as the Sino-U.S. trade dispute threatens to escalate into a full-blown trade war that many fear could push the global economy into recession. The data saw yields on German 10- year Bunds — seen as one of the safest assets in the world — fall to fresh record lows. U.S. Treasury yields were also grinding lower. Safe-haven bond yields have already fallen in recent days amid rising speculation about monetary easing by major central banks. Spain bond yields have fallen for the first time below 0.5%. The Chinese data was disappointing, especially the industrial output numbers,” said Chris Scicluna, head of economic research at Daiwa Capital Markets. “That’s given bond markets additional momentum. Equity markets across Europe chalked up hefty losses on the riskoff sentiment, with a warning by U.S. chipmaker Broadcom Inc of a slowdown in demand due to trade tensions and the U.S. ban on Chinese tech and mobile phone company Huawei Technologies exacerbating the glum mood. The pan-European STOXX 600 index fell 0.5%, with Germany’s trade-sensitive DAX falling 0.6%. European tech shares led the indexes lower, with semiconductor companies Infineon, AMS, STMicroelectronics, Siltronic and Dialog Semiconductor all dropping between 2%-3% after Broadcom outlined the impact of a total halt in sales to Huawei. “The sales warning from Broadcom is also weighing on markets this morning as it suggests that both semiconductor and auto sectors are under pressure worldwide,” said Christophe Barraud, chief strategist at brokerage Market Securities in Paris, adding that expectations for a rebound were now shifting from the second half of this year to 2020. “Given both these sectors are key for world trade, it’s not good news for trade.” U.S. stock futures indicated Wall Street was in line for a lower open, with the S&P e-mini pointing to a 0.2% fall. Wall Street shares have had a strong run in June on hopes the Federal Reserve will ease monetary policy soon to counter pressure on the U.S. economy from the escalating trade war.

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