GLOBAL MARKETS-Europe stocks set for worst monthly loss since 2011 on China …

31 Aug 2015 | Author: | No comments yet »

Asian stocks set for worst monthly drop in three years.

A gauge of global equities extended the biggest monthly slump in more than three years as sentiment toward China soured while Federal Reserve officials signalled they’re prepared to raise interest rates. 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 per cent and France’s CAC 40 likely to fall 1.39 per cent, according to IG. The UK market is closed for a public holiday. “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. More than US$5 trillion has been erased from the value of shares worldwide this month as China’s surprise devaluation of the yuan on Aug. 11 sparked concern the world’s second-biggest economy may be in worse shape than analysts had estimated.

Bets on a September Fed rate increase climbed after Vice Chairman Stanley Fischer said over the weekend there is “good reason” to believe inflation will accelerate. “The markets are still digesting the China news and it seems that the uncertainty from China’s rollercoaster is not over yet,” said Guillermo Hernandez Sampere, who helps manage the equivalent of US$167 million as head of trading at MPPM EK in Eppstein, Germany. “Any panic created out of this high volatility keeps investors out of the market. They have plunged more than 40 per cent since mid-June. “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. Traders are also on edge ahead of US business surveys, factory orders, trade data and Friday’s nonfarm payrolls this week, after comments by a top Federal Reserve official suggested that a September rate rise was more likely than some investors expected.

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.

The dollar eased 0.6 per cent to 121.03 yen after rising to the week’s high of 121.76 on Friday following the Fed officials’ comments that kept prospects of a September hike alive. Stocks fell even as people familiar with the matter said China’s securities regulator asked brokerages to step up their support for share prices by contributing 100 billion yuan (US$15.7 billion) to the nation’s market rescue fund and increasing stock buybacks. The market will watch the European Central Bank’s policy meeting on Thursday to see if it will be inclined to ease monetary policy further in the wake of the recent global market mayhem, though no imminent change is expected. The cost of options contracts betting on declines in the China 50 exchange-traded fund has surged to the highest level versus bullish ones since they started trading in Shanghai six months ago. US crude was down 1.3 per cent at $44.62 a barrel after jumping more than 6 per cent on Friday on frenetic short-covering fuelled by violence in Yemen, a storm in the Gulf of Mexico and refinery outages.

Malaysia’s ringgit was the worst performer, losing 8.7 per cent in the month as a political scandal sapped investor confidence and a plunge in commodities prices dimmed the outlook for Malaysian shipments. Oil fell below US$40 a barrel this month, the lowest since February 2009, on concern slowing demand in the U.S. and China will leave the global market oversupplied. –With assistance from Adam Haigh in Sydney, Alan Soughley in Singapore, Roxana Zega in Zurich, Paul Dobson in London and Emma O’Brien in Wellington.

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