Wednesday 21 March 2018

European shares fall, set for worst month in four years plagued by China

CRASH: A Chinese day trader watches a stock fall at a local brokerage house as the crisis hit hard early last week
CRASH: A Chinese day trader watches a stock fall at a local brokerage house as the crisis hit hard early last week

Saikat Chatterjee

European shares fell, with Germany's DAX and France's CAC on track for their worst month in four years, plagued by sliding Chinese stocks and the threat of a U.S. rate increase as early as September.

At 0706 GMT, the DAX, the CAC and the euro zone's Euro STOXX 50 were down 0.5 to 0.6 percent. Volumes were likely to be thin with UK markets closed for a public holiday.

The Euro STOXX 50, the DAX and the CAC, all down about 9 percent in August so far, were set to record their worst monthly performance in percentage terms in four years.

The Fed left open on Friday the possibility of a September interest rate increase, although several officials at the U.S. central bank acknowledged that prolonged turmoil in financial markets might delay the first policy tightening in nearly a decade.

Shanghai stocks, which have plunged more than 40 percent since mid-June, were down about 1 percent, while MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.4 percent and was on track for a fall of about 10 percent this month.Global financial markets looked set for another rough week on Monday, with stocks and commodities falling ahead of data that could give clues on when the US will raise interest rates and surveys which are likely to point to further weakness in China.

Confusion over policy direction in the world's two largest economies sent global markets into turmoil early last week, with the wildest price swings in years pushing investors to the exits.

European shares looked set to follow Asian shares and US stock futures lower on Monday, with Germany's share index expected to open down 1.35 percent and France's CAC 40 likely to fall 1.39 percent, according to IG. The UK market is closed for a public holiday.

US stock futures ESc1 slid 1 percent, suggesting weakness on Wall Street later in the session.

"This is a market that is walking on glass; China seems to be the central theme feeding into a lot of these things but today the focus is very much on US interest rates again," said, James McGlew, executive director of corporate stock broking at Argonaut in Australia.

MSCI's broadest index of Asia-Pacific shares outside Japan shed more than 1 percent and is set to fall 10 percent this month, its worst monthly drop since May 2012.

Selling intensified as China markets extended losses. Shanghai stocks, the epicenter of this month's whip-saw action, were down more than 3 percent at one point. They have plunged more than 40 percent since mid-June.

Japan's Nikkei and Australia were down 2 percent before paring losses.

"A pull back in the market was to be expected as some investors are taking profits after the two-day rally," wrote Gerry Alfonso, director of Shenwan Hongyuan Securities, referring to a brief rebound late last week.

"Investors seem to be waiting until the manufacturing PMI figure is released later this week before making significant decisions."

A Reuters poll showed China's official factory sector activity likely fell to a 3-year low in August. Other surveys on Chinese factory and service sector activity will also be released on Tuesday.

Traders are also on edge ahead of US business surveys, factory orders, trade data and Friday's non-farm payrolls this week, after comments by a top Federal Reserve official suggested that a September rate rise was more likely than some investors expected.

Fed Vice Chairman Stanley Fischer, speaking at the central bank' conference in Wyoming, said recent volatility in global markets could ease and possibly pave the way for a rate hike.

Prospects of higher interest rates and returns in the United States combined with China's slowdown have diminished the appeal of emerging markets as investors have dumped riskier assets.

Investors sold $5.9 billion of emerging market assets between Aug. 20-26, a sharp increase from $1.5 billion the week earlier, according to Nomura fund flows data.

Credit markets, often a harbinger of things to come for equities, spelt further pain in store for emerging markets.


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