 Europe Stocks Fall as China Equities Plunge; Dollar, Metals Drop
Reuters - 7/27/2015 2:58:05 PM
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European stocks joined a slump in equities across Asia, with Shanghai’s benchmark gauge plunging the most in eight years amid concern China’s economic slowdown is deepening. The dollar slid with grains and industrial metals.
The Stoxx Europe 600 Index declined 0.5 percent by 8:01 a.m. in London after the Shanghai Composite Index tumbled 8.5 percent, the most since February 2007. Futures on the Standard & Poor’s 500 Index were little changed after U.S. stocks retreated Friday. The Bloomberg Commodity Index extended a 13-year low as corn sank with nickel and copper. The greenback weakened against most major peers, falling 0.4 percent versus the euro.
“Today’s rout in China poured cold water on investor sentiment,” said Mari Oshidari, a Hong Kong-based strategist at Okasan Securities Group Inc. “This also revealed the market is still too fragile without government support.”
The Shanghai Composite’s slump is a blow to policy makers who enacted unprecedented measures to stem a $4 trillion rout that ran for a month through mid-July. Chinese industrial company profits decreased 0.3 percent in June from a year earlier, figures showed Monday, the latest evidence of a deteriorating outlook for the world’s second-biggest economy. A report on German business optimism is also due today, while investors await data on U.S. durable and capital goods orders ahead of this week’s Federal Reserve meeting.
A gauge of Chinese stocks in Hong Kong slumped 4.2 percent Monday, while the city’s benchmark Hang Seng Index slid 3.1 percent. The report on industrial profits from the statistics bureau followed data Friday showing a private manufacturing gauge unexpectedly declined in July to a 15-month low.
Support Measures
Chinese officials allowed more than 1,400 companies to halt trading, banned major shareholders from selling stakes, restricted short selling and suspended initial public offerings, spurring a 16 percent rebound on the Shanghai measure through last week. The International Monetary Fund has urged the nation to eventually unwind the support measures, according to a person familiar with the matter.
“Investors are not confident that the bull market will return any time soon,” said Jimmy Zuo, a trader at Guosen Securities Co. in Shenzhen.
A gauge of Asian materials companies slid 1.3 percent Monday to extend a six-year low. Commodity stocks also drove the MSCI All-Country World Index’s 2.1 percent drop last week, the steepest since mid-December.
West Texas Intermediate crude fell 0.4 percent to $47.95 a barrel Monday, while Brent lost 0.1 percent to $54.56. WTI retreated 5.4 percent last week, sliding into a bear market, as a rebound in U.S. drilling added to signs producers will keep pumping amid a global glut. The number of rigs seeking oil climbed by 21 to 659, the third weekly increase this month, according to Baker Hughes Inc.
Fed Meeting
Industrial metals extended declines as Chinese shares retreated, with nickel losing 1.8 percent and copper falling 0.9 percent.
Gold for immediate delivery added 0.3 percent to 1,102.88 an ounce, following last week’s 3.1 percent tumble amid concern about prospects for higher U.S. interest rates.
While there’s no chance that the Fed will increase borrowing costs when it meets this week, the odds that it will in September are 50 percent, according to the median probability in a Bloomberg survey of economists. Hedge funds swung into a net-short position on gold in New York for the first time in records going back to 2006, signaling the slump may have further to run.
Corn in Chicago fell 2.6 percent on an outlook for favorable weather conditions in the U.S., extending last week’s 6.6 percent slide. Wheat lost 1.1 percent, while soybeans dropped 1.2 percent.
Dollar Weakens
The Bloomberg Dollar Spot Index, a gauge of the greenback versus 10 major peers, lost 0.2 percent Monday after adding 0.1 percent last week in its fifth straight advance.
“The U.S. dollar may be a bit weaker because lower commodity prices and weaker growth indicators in China and Asia generally may be generating some doubts that the U.S. economy will be strong enough for the Fed to hike rates in September,” said Greg Gibbs, a strategist at Royal Bank of Scotland Group Plc in Singapore. “The dollar uptrend has been solid against emerging-market and commodity currencies and some consolidation may be natural.”
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