China’s surprise devaluation of the yuan and heavy selling in its stock markets in recent weeks have sparked fears that it could be at risk of a hard landing which would hammer world growth, sending financial markets into a tailspin.
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A key gauge of China’s vast manufacturing sector has tumbled to its lowest level in more than six years as domestic and export demand dwindled.
It was the worst reading since March 2009, in the depths of the global financial crisis, and the sixth straight one below the 50-point level, which separates growth in activity from contraction on a monthly basis.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 2.4 percent to its lowest since July 27, 2012, for a weekly loss of 6.1 percent.
“Due to uncertainties about where China’s economy is going, what Beijing will do [in terms of monetary policy] and how much the impact it will have on the global market, anything related to China worries is sold”, the Guardian quoted Daiwa Securities strategist Takuya Takahashi as saying.
China’s manufacturing sector this month suffered its biggest shrinkage in six and a half years, the latest sign of malaise in the powerhouse economy. That, coming on the heels of weaker-than-expected data in July, stoked fears of a slowdown in the world’s second-biggest economy.
“The word on everyone’s lips is deflation – poison for equity markets”. Australia’s dollar fell 0.5 per cent to 72.98 US cents at 11:03 am in Tokyo after slumping to 72.16 on August 12, the lowest since April 2009.
The safe-haven U.S. Treasury yields also pulled further down.
Adding to investors’ nerves was the release of the July minutes of the Federal Open Market Committee’s (FOMC) meeting where one member voted in favour of an immediate increase in interest rates. “This view seems to have deteriorated somewhat with the S&P 500 closing below its multi-month trading range – a fate the credit markets and the US yield curve have been screaming for some time”.
Lower Treasury yields in turn weighed on the dollar. The currency traded at 122.82 yen, the lowest in more than five weeks, after sinking from an overnight high of 124.16.
In the euro zone, Greek Prime Minister Alexis Tsipras resigned on Thursday, hoping to strengthen his hold on power in snap elections after seven months in office in which he fought Greece’s creditors for a better bailout deal but had to cave in.
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Royal Dutch Shell unit Sarawak Shell Bhd has transferred its 50 percent stake as operator of the MLNG Dua liquefied natural gas (LNG) plant to Malaysian state oil firm Petroliam Nasional Bhd (Petronas), Petronas said on Friday. The German DAX fell 2.3 percent, France’s CAC 40 index dropped 2.1 percent and the U.K.’s FTSE 100 slid 0.6 percent.
