SN: European shares fall sharply after China factory contraction
World stock markets tumbled towards their worst week of the year yesterday and commodities got another kicking, as more alarming data from China sent investors scurrying to the safety of bonds and gold.
Latest fears over China were stoked by a key manufacturing index for the country showing its factories contracting to their lowest level since 2009, at the height of the financial crash.
A plunging Chinese stock market and quick moves by authorities to devalue the yuan have fanned trader concerns that China won’t reach its 7% economic growth target this year, despite cutting borrowing costs and other stimulus efforts. Otherwise, he said, given the strength of the U.S. economy, the market’s swoon was a “bit perplexing”. “Markets will now surely have to firm up considerably for the Fed to pull the trigger next month”, said Deutsche Bank analyst Jim Reid.
Europe’s bourses were also being beaten up.
DAX, which is having its worst month since 2011, was down just under 1.4 percent and France’s CAC 40 was off 1.1 percent.
“Commodity markets are telling us this is quite serious”, said Neil Dwane, head of European equities at Allianz Global Investors, which oversees EUR412 billion ($463 billion) of assets.
In the Forex markets, the euro lost some of its overnight impetus as it was pushed to a two-month high by those looking to get out of thumped Asian currencies and China’s envoy’s such as the Aussie and Hong Kong dollars.
A detailed breakdown of the activity survey showed conditions were deteriorating on almost every level, with factory output sinking to a near four-year low, domestic and export orders declining at a faster rate than in July and companies laid off more workers. Coming on the heels of weaker-than-expected data in July, it stoked fears of a slowdown in the world’s second-biggest economy.U.S. stock futures fell to a 6 month low after the survey, while Japan’s Nikkei stock index fell 3 percent.
Shanghai stocks dropped 4 per cent to below the 200-day moving average for the first time since July 2014. That brought losses for the week to 11 percent. The Standard & Poor’s 500 index dropped 35 points, or 1.7 percent, to 2,000.
Crude oil fell again as oversupply from members of the Organization of the Petroleum Exporting Countries in particular continues to overwhelm slowing demand. It has now been in decline for eight consecutive weeks, the longest streak since 1986. Brent nudged $46 a barrel.
Oil’s run of weekly losses is its worst since 1986.
Among currencies it was a similar story. The Australian dollar, considered a liquid proxy for China demand, slid to $0.7285 at one point and was last trading at $0.7304, down 0.5 per cent for the day.
“The old style policy easing in the past three quarters haven’t been felt by the real economy yet”, said Citigroup economists Minggao Shen and Serena Wang in a report.
