China Jitters Send Global Stocks Tumbling
World stocks and commodity prices tumbled on Tuesday, as poor Chinese data saw fears about its economic health intensify.
After a few upbeat days for world markets, concern about China revived after surveys showed its manufacturing sector shrinking at its fastest pace in three years and its services sector also cooling.
Asian stocks, particularly in Japan .N225 and Australia , fell overnight, and the gloomy mood extended to Europe. The FTSEurofirst 300 .FTSE dropped 2.3 percent, following its worst month in four years.
Futures prices also pointed to Wall Street opening 2 percent lower CLc1. Oil CLc1 fell back $1.5 towards $50 a barrel, halting biggest three-day surge in 25 years. [O/R]
“The problem is that we have these brief spells of optimism like we had last week when U.S. GDP was revised up, but the overall theme is still the weakness in China and that is very hard to dispel from markets,” said Philip Marey, a strategist at Rabobank in the Netherlands.
While shares and commodities remained the focus, the mood was similarly wary in the currency and bond markets. [FRX/][GVD/EUR]
The safe-haven Japanese yen JPY= and the low-yielding euro EUR= both rose against the dollar, to 120.16 yen per dollar and $1.1323 to the euro.
Gold XAU=, another favorite of investors during periods of uncertainty, was up at $1,143 an ounce XAU. It had risen 3.5 percent in August, its best month since January.
The head of the International Monetary Fund, Christine Lagarde, summed up the situation in a speech in Indonesia, where she said global economic growth was now likely to be weaker than had been expected just a few months ago.
She cited both a slower recovery in major advanced economies and a further slowdown in emerging nations and highlighted the need to “be vigilant for spillovers” from China’s stutters.
“The transition (in China) to a more market-based economy and the unwinding of risks built up in recent years is complex and could well be somewhat bumpy,” she added.
CAUTION! FRAGILE CHINA
The latest bout of volatility was kicked off by losses on Wall Street, after comments by Federal Reserve Vice Chairman Stanley Fischer appeared to keep alive chances of a U.S. interest rate increase in September.
China’s official Purchasing Managers’ Index (PMI) then compounded matters, falling to 49.7 in August from the previous month’s reading of 50.0, its weakest showing in three years and below the 50 mark that separates expansion from contraction.
“Recent volatilities in global financial markets could weigh on the real economy, and a pessimistic outlook may become self-fulfilling,” said He Fan, chief economist at Caixin Insight Group. A separate survey from Fan’s organization had also shown the country’s services sector slowing.
MSCI’s broadest index of Asia-Pacific shares excluding Japan .MIAPJ0000PUS lost 1.9 percent to extend the more than 10 percent it had lost in August.
The Shanghai Composite Index .SSEC fell 1.2 percent, but the CSI300 index .CSI300 was almost flat. [.SS]
The pain was felt elsewhere. Japan’s Nikkei .N225 had slumped 3.8 percent after losing 8.2 percent in August. Australian , Indonesian .JKSE and Hong Kong .HSI stocks were all down by more than 2 percent. [EMRG/FRX]
Russia’s rouble was among the hardest-hit emerging market currencies [EMRG/FRX] as the price of oil fell. Gulf stocks and metals markets were hurt as well. [MET/L]
London Metal Exchange copper CMCU3 fell almost 1 percent to $5,087.50 as markets reopened after a long holiday weekend. Nickel slid 2 percent and aluminum skidded as well.
Another recent victim of the China jitters, the Australian dollar, edged up. It gained about 0.2 percent to $0.7125 AUD=D4 after the Reserve Bank of Australia held Aussie interest rates steady.