Great fall of China sinks Euro­pean, Asian stocks


Alarm bells rang across world mar­kets on Mon­day as a 9 per­cent dive in Chi­nese shares and a sharp drop in the dol­lar and ma­jor com­modi­ties pan­icked in­vestors.

Euro­pean stocks opened more than 3 per­cent in the red af­ter their Asian coun­ter­parts slumped to 3-year lows as a three month- long rout in Chi­nese eq­ui­ties threat­ened to get out of hand. Safe-haven gov­ern­ment bonds and the yen and the euro ral­lied as wide­spread fears of a China-led global eco­nomic slow­down and cur­rency war kicked in. "It is a China driven macro panic," said Di­dier Duret, chief in­vest­ment of­fi­cer at ABN Amro. "Volatil­ity will per­sist un­til we see bet­ter data there or strong pol­icy ac­tion through force­ful mon­e­tary eas­ing."

With se­ri­ous doubts now emerg­ing about the like­li­hood of a U.S. in­ter­est rate rise this year, the dol­lar slid against other ma­jor cur­ren­cies. It was last at 120.25 yen its low­est in three months. The Aus­tralian dol­lar fell to six-year lows and many emerg­ing mar­ket cur­ren­cies also plunged, whilst the fran­tic dash to safety pushed the euro to a 6-1/2-month high. "Things are start­ing look like the Asian fi­nan­cial cri­sis in the late 1990s. Spec­u­la­tors are selling as­sets that seem the most vul­ner­a­ble," said Takako Ma­sai, head of re­search at Shin­sei Bank in Tokyo.

Com­mod­ity mar­kets took a fresh bat­ter­ing. Brent and U.S. crude oil fu­tures hit 6-1/2-year lows as con­cerns about a global sup­ply glut added to wor­ries over po­ten­tially weaker de­mand from China. U.S. crude was down 3 per­cent at $39.20 a bar­rel while Brent lost 2.4 per­cent to $44.40 a bar­rel.

Cop­per, seen as a barom­e­ter of global in­dus­trial de­mand, tum­bled 2.5 per­cent, with three-month cop­per on the Lon­don Me­tal Ex­change hit­ting a sixyear low of $4,920 a tonne. Nickel slid 4.6 per­cent to its low­est since 2009 at $9,730 a tonne.

The near 9 per­cent slump in Chi­nese stocks was their worst per­for­mance since the depths of the global fi­nan­cial cri­sis in 2009 and wiped out what was left of the 2015 gains, which in June has been more than 50 per­cent. The latest rout was rooted in in­vestor dis­ap­point­ment that Bei­jing did not an­nounce ex­pected pol­icy sup­port over the week­end af­ter its mar­kets shed 11 per­cent last week.

Com­pound­ing the real-time falls all in­dex fu­tures con­tracts slumped by their 10 per­cent daily limit, point­ing to more bad days ahead. MSCI's broad­est in­dex of Asia-Pa­cific shares out­side Ja­pan fell 5.1 per­cent to a three- year low. Tokyo's Nikkei was down 4.1 per­cent and Aus­tralian and In­done­sian shares hit twoyear troughs.

"China could be forced to de­value the yuan even more, should its econ­omy fal­ter, and the eq­uity mar­kets are deal­ing with the prospect of a weaker yuan am­pli­fy­ing the neg­a­tive im­pact from a slug­gish Chi­nese econ­omy," said Eiji Ki­nouchi, chief tech­ni­cal an­a­lyst at Daiwa Se­cu­ri­ties in Tokyo. There was fur­ther ev­i­dence that de­vel­oped mar­kets were be­com­ing syn­chro­nised with the trou­bles. Lon­don's FTSE which has a large num­ber of global min­ers and oil firms, was down for its 10th straight day, its worst run since 2003.

The pan-Euro­pean FTSEurofirst 300, mean­while, was down 3.1 per­cent by 0830 GMT at 1,382.15 points, wip­ing around 260 bil­lion eu­ros ($298.61 bil­lion) off the in­dex and tak­ing its losses for the month to more that 1 tril­lion eu­ros.

U.S. stock fu­tures also pointed to larger losses for Wall Street's main mar- kets, with the S&P 500, Dow Jones In­dus­trial and Nas­daq ex­pected to open down 1.8, 2.2 and 3.1 per­cent re­spec­tively. "We are in the midst of a full-blown growth scare," strate­gists at JP Mor­gan Cazen­ove said in a note.

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