BLBG: China Rout Leads Stocks Lower as Dollar Drops, Treasuries Rise
The biggest slump in Chinese shares in eight years led equities lower worldwide and selling spread to the dollar as the turmoil bolstered speculation the Federal Reserve will keep interest rates lower for longer.
Standard & Poor’s 500 Index futures declined and European stocks fell for a fifth day. That followed an 8.5 percent slide in the Shanghai Composite Index as Chinese industrial company profits decreased in June. The dollar weakened 0.8 percent to $1.1069 per euro at 8:05 a.m. in New York while Treasuries rose with German bunds on haven demand.
“We seem to be in a tough period for equities,” said Stewart Richardson, chief investment officer at RMG Wealth Management LLP in London. “There’s a number of indicators such as the commodity prices and China showing a slowing global growth. Any further deterioration in the financial markets that could be triggered by China would push back a rate hike.”
The profit decline is the latest evidence of a deteriorating economic outlook for China, while the slump in stocks will be a blow to policy makers who enacted unprecedented measures to stem a $4 trillion rout. In the U.S., investors await data on durable-goods orders before a Fed meeting this week.
A gauge of Chinese stocks in Hong Kong slumped 3.8 percent Monday, while the city’s benchmark Hang Seng Index slid 3.1 percent. The report on industrial profits from the statistics bureau followed data Friday showing a private manufacturing gauge unexpectedly declined in July to a 15-month low.
Support Measures
Chinese officials allowed more than 1,400 companies to halt trading, banned major shareholders from selling stakes, restricted short selling and suspended initial public offerings, spurring a 16 percent rebound on the Shanghai measure through last week from a low on July 8. The International Monetary Fund has urged the nation to eventually unwind the support measures, according to a person familiar with the matter.
The Stoxx Europe 600 Index declined 1.7 percent as all 19 industry groups fell. S&P 500 futures slipped 0.5 percent. The MSCI Emerging Markets Index slid 2 percent to a two-year low.
Ryanair Holdings Plc dropped 1.8 percent, leading travel companies to the biggest decline among sectors, after cautioning that over-capacity could weigh on average fares. UBS Group AG lost 1.3 percent. While Switzerland’s largest bank reported a jump in second-quarter profit, Citigroup Inc. noted that the beat is due to one-time items.
Pearson Plc fell 3.8 percent after announcing plans to dispose of its stake in The Economist magazine, just days after the sale of The Financial Times newspaper. 888 Holdings Plc dropped 2.3 percent after GVC Holdings Plc raised its bid for Bwin.party Digital Entertainment Plc, seeking to block 888’s agreement to acquire the online gaming company. GVC slipped 1.4 percent, while Bwin.party rose 1.8 percent.
Teva Pharmaceuticals Industries Ltd. added 5.7 percent in early New York trading, and Allergan Plc advanced 6.8 percent as the Israeli drugmaker agreed to buy the generic-drug business of Allergan. Teva also withdrew its proposal to buy Mylan NV, which fell 1.2 percent. Teva’s shares were suspended in Israel pending an announcement.
Chinese officials allowed more than 1,400 companies to halt trading
The dollar dropped against all but two of its 16 major counterparts. The Bloomberg Dollar Spot Index declined 0.4 percent to 1,204.83, after rising to 1,212.78 on Friday, the highest since March 19.
Dollar bulls have been in the ascendancy since the middle of June as easing political tension in Greece allowed traders to focus on the prospects for higher Fed rates. Investors increased bullish dollar bets to 375,137 contracts in the week ended July 21, the most since March, based on data from the Commodity Futures Trading Commission in Washington.
Haven Demand
“The U.S. dollar may be a bit weaker because lower commodity prices and weaker growth indicators in China and Asia generally may be generating some doubts that the U.S. economy will be strong enough for the Fed to hike rates in September,” said Greg Gibbs, a strategist at Royal Bank of Scotland Group Plc in Singapore.
Russia’s ruble slid 1.8 percent to 59.4970 per dollar, the lowest since March, as oil declined.
Turkey’s lira weakened for a fourth day, losing 1.3 percent, after jets bombed Kurdish rebels in Iraq, expanding a military operation the government started against the Islamic State in Syria last week.
Copper fell 1 percent in London and oil slid 1.1 percent to $47.61 a barrel in New York.
Treasury 10-year note yields fell three basis points to 2.23 percent and benchmark bund rates declined two basis points to 0.68 percent. U.K. gilt yields of similar maturity dropped two basis points to 1.91 percent.
