Global shares, dollar sag after China data; traders bet on Fed sea change

LONDON, July 17 (Reuters): Global shares and commodities slipped on Monday after data showed the Chinese economy is growing a lot more slowly than expected, while the dollar eased as traders ramped up their bets for an imminent end to US rate rises.
China reported economic growth of 0.8 per cent in the second quarter, above the 0.5 per cent forecasted, while the annual pace slowed more than expected to 6.3 per cent, well below expectations for a reading of 7.3 per cent.
Last week brought a broad sweep out of the dollar and into risk assets like equities and emerging market currencies, as well as into bonds, after a cooler reading of US consumer inflation was enough to convince investors that the Federal Reserve could deliver the final rate hike of its monetary policy cycle this month.
The dollar, which fell 0.1 per cent against a basket of major currencies on Monday, staged its biggest weekly fall of 2023 last week, dropping 2.3 per cent, as traders rushed to price out the chances of a September rate rise.
This week's data macro calendar is light and Fed officials are now in their "blackout period" ahead of the July policy meeting, leaving investors with the big question of whether last week's market moves will continue or reverse.
"I just can't help but think we have gone a little bit too far too fast ... one cooler inflation number doesn't exactly mean the Fed are done and dusted and not going to hike again," TraderX strategist Michael Brown said.
"Obviously, they're going to hike next week, but after that, markets pretty much think they're going to be done, and are starting to price in cuts for the first half of next year, which to my mind, is too aggressive," he said.
"Given that we don't have a lot on the calendar this week, the path of least resistance is lower for the dollar in the near term," Brown added.
Global equities per cent on Monday, under pressure from a decline in Europe, where weakness in China-sensitive shares like miners knocked 0.3 per cent off the STOXX 600.
US stock index futures , were mostly steady on the day, trading between flat and up 0.1 per cent ahead of a packed weak of corporate earnings.
Tesla is the first of the big tech names to report this week, along with Bank of America, Morgan Stanley, Goldman Sachs and Netflix.
Data on US retail sales are expected to show a rise of 0.3 per cent ex-autos, continuing the slower trend but solid enough to fit into the market's favoured soft-landing theme.
"We continue to look for a modest contraction to take hold toward the end of the year, but the path to a non-recessionary disinflation is starting to look more plausible," said Michael Feroli, an economist at JPMorgan.
"We expect Fed officials cheered the latest inflation developments, but declaring victory with sub-4 per cent unemployment, and over 4 per cent core inflation, would be reckless."
As a result, markets still imply around a 96 per cent chance of the Fed hiking to 5.25-5.5 per cent this month, but only around a 25 per cent probability of yet a further rise by November.
Two-year US Treasury yields , the most sensitive to shifts in rate expectations, were down 2 basis points on the day at 4.728 per cent, just above one-month lows.
The dollar fell 0.3 per cent against the yen to 138.34, 2.4 per cent last week. The euro rose 0.2 per cent to $1.1247 , having also surged 2.4 per cent last week to clear its former top for the year at $1.1096.
Sterling rose 0.1 per cent to $1.3105 ahead of UK inflation figures this week, where another high reading would add to the risk of further sizable rate hikes.
"A lift in the core CPI can encourage financial markets to price in even more tightening from the Bank of England and push GBP/USD up towards upside resistance at $1.3328," said analysts at CBA in a note.
Crude oil dropped sharply following the China GDP data that cast doubt on demand from the world's largest importer of energy, just as production in Libya picked up after a temporary outage.
Brent crude futures were last down 1.6 per cent at $78.60 a barrel. Copper , which is also highly sensitive to Chinese data, dropped 2.1 per cent to $8,490 a tonne.