Markets see red after China forecast cut

FALLING commodities prices and worries about China’s economy pulled stocks sharply lower yesterday, while bond yields declined and the dollar rose to a near two-week high on bets that the US officials would soon hike interest rates.

The Asian Development Bank ( ADB) slashed its growth forecast to 6.8% from 7.2% for China, turning sentiment negative and dragging down commodities.

In the early evening yesterday, the rand was at R13.7032/$ from a close of R13.4725 the day before. It touched an intraday low of R13.7436/$.

The JSE all share closed down 1.74% and the blue chip top 40 was down 1.89%. Platinum stocks led the losers with the index losing 6.25%. Resources retracted 4.6%.

Besides China, Volkswagen’s plunge for a second day caused European stock markets to tumble with car makers and miners in free fall. Frankfurt’s benchmark DAX 30 index sank 3.8%, the Paris CAC 40 shed 3.42% and London’s FTSE 100 fell 2.83%.

In London, Glencore tumbled as much as 16%, the most ever, and Anglo American touched a 15-year low. Wall Street opened sharply down.

“The market is fragile as it is,” said Art Hogan, chief market strategist at Wunderlich Securities. “The volatility will continue until we get some clarity from the Fed (Federal Reserve) and China.”

The Fed last week kept rates near zero, citing turbulence in the global economy, including slowing growth in China. Atlanta Fed president Dennis Lockhart on Monday said a rate hike this year was still possible.

The sell-offs in stocks and commodities boosted US Treasuries prices and other lower-risk government debt, such as German 10-year Bunds.

Though the Fed held policy steady last week, European Central Bank officials have been stressing that monetary policy in the euro zone will remain loose for some time.

The euro was down 0.4% at 1.1140/$, having hit a high of 1.1459/$ on Friday. The dollar eased 0.5% to 119.96 to the yen but was still above Friday lows. Oil prices fell as concern over global growth weakened the outlook for demand and traders took profits from Monday’s 3% rise. Brent crude, the global benchmark, was down $1.11 a barrel at $47.82.

“We’re still in a situation where investors are going to wait and see when a hike will happen,” Capital Economics analyst Simona Gambarini said. “There’s going to be a bit of volatility around precious metals until the Fed eventually does hike rates.”

We are still in a situation where investors are going to wait and see