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 The data from China showed its giant manufacturing sector slowing at
the fastest pace since the depths of the financial crisis in 2009,
confirming worries about its health that have been preying on
economist's minds for months.
Emerging market assets took another hammering and oil prices were on
track for their longest losing streak since 1986, as fears of a
China-led deceleration in entire global growth gripped sentiment.
The major developed economy markets were increasingly being dragged
into the sell-off. Wall Street was expected to open firmly in red
again later having already lost more than 2.5 percent this week.
Europe's bourses were also being beaten up. The pan-regional
FTSEurofirst was down more than 1.5 percent as traders
shrugged off some reassuringly solid euro zone manufacturing and
services data in a third straight day of selling.
Britain's FTSE 100 was 1.2 percent lower, Germany's DAX, which is
having its worst month since 2011, was down just under 1.4 percent
and France's CAC 40 was off 1.1 percent.
"Markets are going to continue to be somewhat disappointed by the
implications for Chinese growth ... and I don't have a great deal of
comfort to offer there," said Michael Kurtz, Global Head of Equity
Strategy at Nomura.
In the FX markets, the euro <EUR=> regained some of its overnight
momentum having been pushed to a two-month high by those looking to
get out of battered Asian currencies and China proxies such as the
Aussie and Hong Kong dollars.
The latest rout had been triggered as the Caixin/Markit
manufacturing index showed activity in China's factory sector
shrinking at its fastest pace in almost 6 1/2 years in August as
domestic and export demand dwindled.
That decline, coming on the heels of weaker-than-expected data in
July, plus this month's turbulent changes in the yuan, and a brutal
stock market plunge, heightened fears.
Shanghai stocks dropped 4 percent to below the 200-day moving
average for the first time since July 2014. That brought losses for
the week to 11 percent.
The Hang Seng index in Hong Kong was down 2.4 percent for a weekly
loss of 7.4 percent. Japan's Nikkei declined 2.9 percent, 5.2
percent on the week.
It all left MSCI emerging markets index at its weakest in four years
and the 45-country "All World" index down more than 3.2 percent on
the week and heading for its worst of 2015 so far.
PRECIOUS GAINS
China's woes continued to roil commodities. Oil resumed its downward
trend. U.S. crude was at a more than 6-year low, on track for its
eight straight weekly decline as it slipped 0.5 percent to $41.
Brent nudged $46 a barrel.
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Oil's torrid run of weekly losses is its worst since 1986 when OPEC
ramped up production and sent it as low as $10 a barrel.
Among currencies it was a similar story. The Australian dollar,
considered a liquid proxy for China demand, slid to $0.7285 at one
point and was last trading at $0.7335, down 0.2 percent for the day.
The Malaysian ringgit MYR= hit a pre-peg 17-year low and South
Korea's won fell again to take its losses to 1.8 percent
against the dollar this week.
"The perfect storm that has enveloped EM local markets looks set to
continue," analysts for Barclays said in a note.
All the market ructions sent gold, seen as a good asset to hold in
difficult times, to its highest level in more than a month.
Safe-haven U.S. Treasury yields also slipped further. They were
already feeling a downward pull after minutes from the Federal
Reserve's July meeting this week offered little clue of a near-term
rate hike.
"The U.S. markets have held up well of late, being viewed as
somewhat of a safe haven," wrote Chris Weston, chief market
strategist at IG in Melbourne. "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 U.S. yield curve have been
screaming for some time."
Lower Treasury yields and the stronger euro in turn weighed on the
dollar. The currency traded at 122.68 yen, the lowest in more than
five weeks, after sinking from an overnight high of 124.16. It was
at £1.1278 to the euro.
(Additional reporting by Nichola Saminather in Singapore and
Shinichi Saoshiro in Japan; Editing by Toby Chopra)
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