It was a Black Monday across the global financial markets with stocks, currencies and commodity prices capitulating as the support measures by the Chinese government authorities failed to allay investor concern that a slowdown in the world’s second-largest economy is deepening.
The US 10-year treasury yields slid below 2% for the first time since April and gold futures on the Comex hovered around seven-week highs, indicating investors are fleeing to safe-haven instruments.
More than $5 trillion has been erased from the value of stocks worldwide since the devaluation of the yuan on August 11, which deepened concerns over a malaise in China, according to Bloomberg data.
Back home, Indian equities plunged the most since 2009. The Sensex lost 1,624.51 points or 5.94% to close at 2,5741.56, while the rupee fell through the 66 mark against the dollar to close the session at 66.6450, a fresh two-year low for the Indian currency.
The rupee tumbled 1.30% on Monday following a massive fall in share indices on fears that China’s yuan devaluation and the US Federal Reserve’s imminent rate hike could cripple global economic growth and hurt emerging markets such as India. Dollar selling by public sector banks at the behest of the Reserve Bank of India’s intervention around 66.50 level and governor Raghuram Rajan’s comments slowed the currency’s fall during the session.
Foreign portfolio investors net sold $792 million of shares in the cash segment on Monday, the biggest single-day sale since August 2013.
Andrew Holland, CEO, Ambit Invest Advisory, said Monday’s fall was largely the consequence of investors having ignored the problem in the Chinese markets. However, he clarified that the fall was not a repeat of the 2008 Lehman Brothers crash.
He added that it was unfair to judge a market based on a single day’s performance. Rather, it was important to assess the performance through the year. “The Indian markets have been in much better shape compared to its Asian and EM peers,” Holland said.
China’s stocks plunged the most since 2007 as government support measures failed to allay investor concern that a slowdown in the world’s second-largest economy is deepening. The Shanghai Composite Index tumbled 8.5 % to 3,209.91 at the close to erase its gains for the year.
The Hang Seng China Enterprises Index of Chinese stocks in Hong Kong fell 5.8% to its lowest level since March 2014. Futures on the CSI 300 Index declined by the 10 % daily limit. Worsening economic data and signs of capital outflows are undermining unprecedented government attempts to shore up the country’s $6-trillion stock market.
While China said over the weekend it will allow pension funds to buy shares for the first time, a speculated cut in bank reserve ratios failed to materialise.
US government securities rallied for a fourth straight day amid concern that slowing growth in China will suppress global economic momentum and potentially deter the Federal Reserve from raising interest rates this year. A bond-market gauge of inflation expectations touched the lowest since August 2010.
The S&P 500 fell 4.6% at 9.38 am in New York, bringing its drop since a May high past 10 %. The Dow Jones Industrial Average sank more than 1,000 points before paring the drop. European stocks tumbled 7.3 %, the most since 2008. The MSCI Emerging Markets Index slid 6 %, for a seventh straight loss. Basic-resource producers led losses as Brent crude tumbled through $45 a barrel.
Treasury 10-year note yields fell as low as 1.97 %.
Oil in London slid below $43 a barrel for the first time since March 2009 on concerns Chinese demand is slowing just as supplies from the US and Iran threaten to swell a global surplus.
Brent futures fell as much as 4.8 %, extending a 7.3 % drop last week that was the biggest in five months. Commodities sank to the lowest in 16 years on forecasts for the weakest Chinese growth since 1990. Iran’s oil minister Bijan Namdar Zanganeh vowed to expand output “at any cost”, according to the ministry’s news website.
The number of active oil rigs in the US rose for the seventh time in eight weeks, Baker Hughes data showed on Friday. Oil’s worsening global surplus has driven prices down by more than 30 % since May. Iran aims to join leading members of the Organisation of Petroleum Exporting Countries in raising production while US crude stockpiles are almost 100 million barrels above the five-year seasonal average.
Copper and aluminium slumped to six-year lows as concern about the health of China’s economy sparked a broad sell-off in commodities. All six main contracts traded on the London Metal Exchange declined, with nickel falling as much as 7.1 %. Commodities dropped to a 16-year low as Brent crude slid below $45 a barrel for the first time since 2009, Chinese equities tumbled by the most since 2007 and stocks in Germany headed for a bear market.
Metals are falling on concern that Chinese support measures aren’t enough to reverse the country’s economic slowdown. Data last week showed manufacturing fell to the lowest in more than six years, following weaker-than-expected data on investment, industrial output, retail sales and exports in July. The nation consumes about 40 % of the world’s copper and half its aluminium.
World looks to China
China’s central bank, which helped trigger a market rout with a surprise devaluation two weeks ago, may be the only one around the world with the firepower to arrest it.
With about 25 trillion yuan ($3.9 trillion) of bank deposits still locked up as reserves and the benchmark one-year interest rate at 4.85 %, the People’s Bank of China has an ample monetary policy arsenal at its disposal. Lending rates in the US, Europe and Japan already are close to zero and the rout is shaking confidence that the global economy will be strong enough to withstand an expected policy tightening by the Fed.
Still, China’s woes could shape the decision-making of other central banks by weakening the global economic outlook and transmitting another bout of deflationary pressures around the globe. Economists are already debating whether the Fed will delay raising interest rates or if the European Central Bank will bolster its quantitative easing programme.
With Bloomberg input