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 European stocks opened more than 3 percent in the red after
their Asian counterparts slumped to 3-year lows as a three
month-long rout in Chinese equities threatened to get out of hand.
Safe-haven government bonds and the yen and the euro rallied as
widespread fears of a China-led global economic slowdown and
currency war kicked in.
"It is a China driven macro panic," said Didier Duret, chief
investment officer at ABN Amro. "Volatility will persist until we
see better data there or strong policy action through forceful
monetary easing."
With serious doubts now emerging about the likelihood of a U.S.
interest rate rise this year, the dollar slid against other major
currencies. It was last at 120.25 yen its lowest in three months.
The Australian dollar fell to six-year lows and many emerging market
currencies also plunged, whilst the frantic dash to safety pushed
the euro to a 6-1/2-month high.
"Things are starting look like the Asian financial crisis in the
late 1990s. Speculators are selling assets that seem the most
vulnerable," said Takako Masai, head of research at Shinsei Bank in
Tokyo.
Commodity markets took a fresh battering. Brent and U.S. crude oil
futures hit 6-1/2-year lows as concerns about a global supply glut
added to worries over potentially weaker demand from China.
U.S. crude was down 3 percent at $39.20 a barrel <CLc1> while Brent
lost 2.4 percent to $44.40 a barrel.
Copper, seen as a barometer of global industrial demand, tumbled 2.5
percent, with three-month copper on the London Metal Exchange
hitting a six-year low of $4,920 a tonne. Nickel slid 4.6 percent to
its lowest since 2009 at $9,730 a tonne.
GREAT FALL OF CHINA
The near 9 percent slump in Chinese stocks was their worst
performance since the depths of the global financial crisis in 2009
and wiped out what was left of the 2015 gains, which in June has
been more than 50 percent.
The latest rout was rooted in investor disappointment that Beijing
did not announce expected policy support over the weekend after its
markets shed 11 percent last week.
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Compounding the real-time falls all index futures contracts slumped
by their 10 percent daily limit, pointing to more bad days ahead.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 5.1
percent to a three-year low. Tokyo's Nikkei was down 4.1
percent and Australian and Indonesian shares hit two-year troughs.
"China could be forced to devalue the yuan even more, should its
economy falter, and the equity markets are dealing with the prospect
of a weaker yuan amplifying the negative impact from a sluggish
Chinese economy," said Eiji Kinouchi, chief technical analyst at
Daiwa Securities in Tokyo.
There was further evidence that developed markets were becoming
synchronized with the troubles. London's FTSE which has a large
number of global miners and oil firms, was down for its 10th
straight day, its worst run since 2003.
The pan-European FTSEurofirst 300, meanwhile, was down 3.1 percent
by 0830 GMT (0430 EDT) at 1,382.15 points, wiping around 260 billion
euros ($298.61 billion) off the index and taking its losses for the
month to more that 1 trillion euros.
U.S. stock futures also pointed to larger losses for Wall Street's
main markets, with the S&P 500, Dow Jones Industrial and Nasdaq
expected to open down 1.8, 2.2 and 3.1 percent respectively.
"We are in the midst of a full-blown growth scare," strategists at
JP Morgan Cazenove said in a note.
(Additional reporting by Pete Sweeney in Beijing and Shinichi
Saoshiro Hideyuki Sano in Tokyo; editing by John Stonestreet and
Anna Willard)
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