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Stocks rise as falling commodities offer balm for inflation fears

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SINGAPORE — Stocks and bonds both headed for their first weekly gain in a month on Friday as investors bet on central banks to tame inflation, although growth fears weighed on commodities.

Copper, a gauge of economic output with its wide range of industrial and construction uses, fell 3% in Shanghai and was down more than 7% for the week – its biggest weekly drop since the collapse financial markets caused by the pandemic in March 2020.

Oil also fell overnight and Brent futures are down 2% on the week at $110.62 a barrel, while benchmark grain prices fell with Chicago wheat in down nearly 9% for the week and to its lowest since March at $9.42 a bushel.

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The price declines provided some relief to equities as energy and food were the drivers of inflation. After heavy recent losses, the MSCI World Equity Index is up 2% over the week.

MSCI’s broadest index of Asia-Pacific stocks outside Japan rose 1% on Friday, flattered by the bailout of short sellers from Alibaba – which rose 5% – amid hints that the tech crackdown in China is fading.

The Japanese Nikkei rose 0.8% for a weekly gain of 1.6% and S&P 500 futures were flat after the index rose about 1% overnight. The US dollar is trading just below a two-decade high against a basket of major currencies.

“While market concerns about a sharp downturn are driving recent commodity price declines, the commodity price decline gives the impression that it could be just what the doctor ordered for the world. ‘global economy,’ said NatWest market strategist Brian Daingerfield.

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“A lot of our hard landing fears are tied to commodity price concerns.”

Soft data this week was to blame.

The gauges for factory activity in Japan, Britain, the euro zone and the United States all softened in June, with US producers reporting the first outright drop in new orders in two years against the collapse of trust.

Bonds rallied sharply on hopes that bets on aggressive rate hikes should be reduced, as German two-year yields fell 22 basis points in their biggest drop since 2008.

The benchmark 10-year Treasury yield fell 7 basis points overnight and remained stable at 3.0944%.

The US dollar has slipped from recent highs, but not too far as investors remain cautious. It was last fairly stable at $1.0529 per euro and bought 134.79 yen.

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The battered yen stabilized this week and drew some support on Friday from Japanese inflation surpassing the Bank of Japan’s 2% target for a second consecutive month, putting even more pressure on its ultra- accommodating.

Speakers from the European Central Bank and the Federal Reserve will be watched closely later today, as will data on UK retail sales and German business confidence. Beyond that, the main concern is what all of this means for business performance.

“The second quarter earnings reports will send shockwaves through the market as the earnings outlook has not deteriorated significantly so far, and this will further heighten fears of a recession,” Charu said. Chanana, market strategist at Saxo brokerage in Singapore.

(Reporting by Tom Westbrook editing by Shri Navaratnam)



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