Markets in countries whose economic fortunes are closely linked to China’s growth tumbled.
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Overall, China’s stocks have plunged more than 11 per cent this week, having previously recovered by some 15 percent from early July’s low, following government measures to prop up the markets. Major European equity markets reported loss amounting to about 0.7 to 1.2 percent. Indonesia’s rupiah (INR) has fallen to it’s weakest level in 15-years, while the Malaysia’s ringgit (MYR) encroaches on its 17-year low outright.
US stock futures fell nearly 0.5 per cent to a six-month low in Asian trade after the Chinese PMI was released.
CHINA JITTERS: In China, a preliminary version of a gauge of business activity, the Caixin purchasing managers’ index, fell to an unexpectedly low 47.1 points. This brings total declines since June to 29 percent, despite an extraordinary series of cash injections by the Chinese central bank, which intensified following the country’s currency devaluation last week. Today’s weak flash report will only heighten trader’s speculation that imminent Chinese monetary policy easing is in the cards. Japan’s manufacturing PMI rose to a seven-month high (51.9) as new order growth accelerated.
Safe-haven US Treasury yields also slipped further. “Furthermore, recent developments may have modestly reduced the likelihood that U.S. core inflation will rise toward 2% in the medium term”, said economists at Credit Suisse in a note on Friday. The 2’s/10’s spread is trading around +142/143bps, the tightest level in four-months. Still, even with the sell-off, the S&P 500 was down just 4.5 percent from its record close of 2,130.82 on May 21. The pan-regional FTSEurofirst.FTEU3 was down more than 1.5 percent as traders shrugged off some reassuringly solid euro zonemanufacturing and services data in a third straight day of selling.
The has rocked fairness markets with commodity shares coming underneath vital strain, as buyers worry demand from China, the world’s largest metals shopper, can be hit.
Geopolitical concerns are adding to the bearish argument.
North Korean leader Kim Jong-un has ordered his army to prepare for war as military tensions with South Korea soared following an exchange of artillery shells across the heavily fortified border.
Greek Prime Minister Alexis Tsipras late Thursday resigned, setting the stage for snap elections on the worldwide bailout that his government negotiated to keep the nation from defaulting and exiting the euro currency zone.
This prognosis is increasingly being borne out as the global economic slump, the destabilization of worldwide currency markets, and growing geopolitical conflicts are combining into a generalized crisis to which the world’s ruling classes can offer no solution. Russian Federation is feeling the pain of the collapse in oil and the RUB. Brent crude for October delivery was down 29c at $46.33. However, the index has since been plagued by political instability in Greece and the slowdown in China. Chinese demand for hard commodities and energy that Africa produces will be tested (in 2015 it was worth approximately $250b to the continent).
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“When stock markets fail to rally in the wake of a dovish Fed then you know you’re in trouble, and as if to reinforce this European stocks look set to post their worst weekly fall this year“, Michael Hewson, chief market analyst at CMC Markets UK, said on Friday.
