So much for a China-led recovery. Data showing that China's economy returned to growth in the June quarter, expanding by a better-than-expected 3.2% as lockdown measures ended, did little to boost nervous global markets.
World stocks are struggling after climbing to a five-month high, with Asian stocks broadly in the red. U.S. and European stock futures are down and risky currencies including the British pound, Aussie and Kiwi dollar, are weaker.
Beyond China’s upbeat gross domestic product numbers, a drop in consumption suggests a bumpy global outlook ahead. Retail sales fell 1.8% year-on-year in June — the fifth straight month of decline.
China’s largest cinema chain operator, Wanda, said it expects to report a net loss of 1.5 billion to 1.6 billion yuan ($228.6 million) in the first half of 2020, compared with a profit of 524 million yuan in the same period last year.
A surge in virus infection rates is also undermining sentiment and keeping safe-haven 10-year U.S. Treasury yields pinned within sight of a three-month low at 0.62%.
Kristalina Georgieva, managing director at the International Monetary Fund, warned a second major wave of coronavirus infections could trigger more disruptions. Economists at IHS Markitt have raised the probability of a double-dip recession to 20%.
The number of global coronavirus infections has reached 13.5 million and the number of deaths more than 583,000 worldwide, according to a Reuters tally. New infection rates in the U.S. states of Oklahoma and Texas surged by record numbers for a second straight day.
A wide-ranging dispute between the United States and China over the control of advanced technologies and the protection of civil liberties in Hong Kong also weighed on sentiment.
A pivotal period for euro watchers begins with a European Central Bank meeting followed by a European Union summit on Friday and Saturday. The ECB is widely expected to leave policy unchanged on Thursday, but the EU summit could have a significant impact on the euro.
The single currency reached a four-month high against the U.S. dollar on Wednesday, but it could see more volatility heading into the summit, which will try to reach agreement on a pandemic rescue fund.
Euro strength suggests investors hope for a compromise close to Germany and France’s proposal of a 750 billion-euro fund. A watered-down outcome could push the euro back to the July lows of 1.12 and send Italian bond yields shooting higher.
Elsewhere, quarterly earning reports in Europe are revealing the extent of lockdown damage. France's Alstom reported a 27% slump in first-quarter sales and Richemont's sales nearly halved after the coronavirus disruption.
On a brighter note, data on early-stage human trials of a vaccine being developed by AstraZeneca and Oxford University will be published on July 20, The Lancet medical journal said.
— A look at the day ahead from Saikat Chatterjee, Senior FX Correspondent. The views expressed are his own —