October 21, 2020

China’s market crashes, sets off panic selling in Europe, US


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3b9b947c-aed6-406d-818c-26309abad8d9From Newsmax

Financial markets are starting 2016 in turmoil as a rout in China rekindled concern that slowing growth there will spread, while tension between and added to geopolitical unease.

Global equities crumbled toward the worst opening to a year in at least three decades. The Dow Jones Industrial Average sank more than 350 points as data showed U.S. manufacturing sank the fastest in six years, while European equities fell after German inflation unexpectedly slowed. Emerging markets slid the most since August as slowing manufacturing triggered a selloff that halted trading in Shanghai. Bonds jumped and the yen rallied on demand for haven assets.

“We’ve had a number of negatives out there in the U.S. throughout most of last year as investors battled to have a flat year and China is a reminder that there aren’t many things to bullish about going into this year,” Michael O’Rourke, chief market strategist at JonesTrading Institutional Services LLC in Greenwich, Connecticut, said by phone.

The slump in developing nations harks back to financial turmoil in August sparked by China’s devaluation of the yuan. It shows the pace of growth in the world’s second-largest economy will remain key for markets in 2016 after a slowdown last year dragged emerging markets lower and fueled a slump in commodities at the same time the Federal Reserve pulled stimulus. While rising tension in the Middle East is boosting oil prices, the biggest meltdown in relations in almost three decades raises the specter of region-wide turmoil.


The MSCI All-Country World Index fell 2.2 percent by 10:23 a.m. in New York, topping its slide of 1.5 percent to start 2001. The Standard & Poor’s 500 Index plunged 2 percent, the most in three weeks, after the gauge ended 2015 down 0.7 percent.

The S&P 500’s decline has it on track for the fourth-worst start to a year in data compiled by Bloomberg going back to 1927. The biggest first-day rout was in 1932 when the index sank 6.9 percent. The other two were a 2.8 percent slide during the dot-com demise in 2001 and a 2 percent drop to open 1980. In those three instances, the index averaged a full-year loss of 0.7 percent.

S&P Dow Jones Indices data indicate the first day of trading has no predictive power for the rest of the year. The index ends the year in the same direction it takes on the opening day 50.6 percent of the time, the data show. The first month of the year has proved more telling — the gauge’s return in January determines its direction for the year 72.4 percent of the time.

Data Monday indicated manufacturing in the U.S. contracted in December at the fastest pace in more than six years as factories, hobbled by sluggish global growth, cut staff at the end of 2015.

Gauges of volatility in the U.S. and Europe spiked, with the Chicago Board Options Volatility Index surging 22 percent. Its counterpart for the Europe Stoxx 50 jumped 21 percent.

“It’s never good to come in on the first day of proper trading to see this happening,” said Patrick Spencer, equities vice chairman at Robert W. Baird & Co. in London. “Volatility will continue to dominate the market this year. There’s short- term escalating concern in the Middle East and the Chinese manufacturing data is also is worrying markets.”

The Stoxx Europe 600 Index fell 2.3 percent, heading for its worst start of the year ever as more than 580 of its companies fell. After two weeks of light trading during the holidays and a fourth straight year of advances, the volume of Stoxx 600 shares changing hands was 15 percent greater than the 30-day average.

Emerging Markets

The MSCI Emerging Markets Index slid 3 percent, the most since Aug. 24, the nadir of a selloff after China’s surprise devaluation of the yuan. China’s CSI 300 Index of large- capitalization companies listed in Shanghai and Shenzhen fell 7 percent, setting off a circuit-breaker that suspended trading for the rest of the day. Benchmark gauges in South Korea, Taiwan, Malaysia, South Africa and Poland lost more than 2 percent on Monday.


The Caixin factory index for China came in at 48.2 in December, missing the median analyst estimate of 48.9 in a Bloomberg survey, after the nation’s first official economic report of 2016 on Jan. 1 signaled manufacturing weakened for a fifth month, the longest such streak since 2009.

Chinese stock trading was stopped under finalized last month, which state a move of 5 percent in the CSI 300 triggers a 15-minute halt for stocks, options and index futures, while a move of 7 percent closes the market for the rest of the day. Also weighing on Chinese stocks was speculation that a ban on share sales by major stakeholders will be lifted.

The Shanghai Composite Index lost 6.9 percent. Hong Kong’s Hang Seng China Enterprises Index slid 3.6 percent, heading for the biggest loss since August. The offshore yuan declined to the lowest in five years on speculation China’s central bank will guide the currency lower to help the economy.

South Korea’s won tumbled 1.3 percent from Dec. 31, leading a gauge of 20 emerging-market currencies down 0.5 percent to a record low on a closing basis. Malaysia’s ringgit, Indonesia’s rupiah, Turkey’s lira and Mexico’s peso weakened at least 0.9 percent.

Gulf stocks fell amid escalating tension between Iran and Saudi Arabia, with the Bloomberg GCC 200 Index dropping 1.7 percent. Shares in Dubai and Qatar slid more than 1 percent while Saudi Arabia’s Tadawul All Share Index slipped 2.4 percent.


Brent crude added 2.1 percent after Saudi Arabia and some of its Gulf allies severed or downgraded ties with Iran in the biggest meltdown in relations between the powers in almost three decades, raising the specter of deepening conflicts across the volatile region.

Oil last week capped the biggest two-year loss on record amid speculation a global glut will be prolonged as U.S. crude stockpiles expanded at a record rate and the Organization of Petroleum Exporting Countries abandoned output limits.

Base metals fell, with nickel and zinc sliding more than 2 percent on the Chinese manufacturing data. Copper fell 1.4 percent.

Spot gold jumped 1.5 percent to $1,076.57 an ounce on demand for a haven. The precious metal posted a third straight annual decline in 2015, the longest retreat in 15 years.


The yen touched 118.70 per dollar, the strongest level since Oct. 15 and the Swiss franc was also among the biggest gainers among haven currencies.

’s dollar slid to 71.93 U.S. cents, down 1.3 percent from Dec. 31, while New Zealand’s currency was 1.2 percent weaker.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was little changed. The gauge climbed 9 percent in 2015, a third straight gain. The yen had a record fourth annual decline, while the euro slumped a second year, as stimulus in Japan and the euro area widened the gap between monetary policy in those regions and the U.S.


Government bonds across developed economies rallied after a plunge in Chinese shares drove demand for the relative safety of sovereign debt, pushing Treasury 10-year yields down by the most in more than two weeks.

Benchmark German 10-year bonds opened higher, rising with European peers from Austria to France. The move echoes the reaction to August’s rout in Chinese shares that helped persuade the Federal Reserve to refrain from raising interest rates in September.

“The sharp drop in Chinese stocks and weaker PMI data is giving a hit to overall risk sentiment, so we are seeing some flight to safety and lower bond yields in response,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen.

The yield on the benchmark U.S. 10-year note yield declined four basis points to 2.23 percent, the biggest drop since Dec. 17. Germany’s bund yield fell six basis points from the Dec. 30 close to 0.57 percent.

© Copyright 2015 Bloomberg News. All rights reserved.

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