GLOBAL MARKETS-Stocks ease on China, Fed concerns; oil rallies

1 Sep 2015 | Author: | No comments yet »

Dow posts biggest monthly loss since 2010.

The Dow Jones Industrial Average ended August with the steepest monthly loss in more than five years, while the benchmark S&P 500 and Nasdaq Composite recorded the largest monthly declines since May 2012 See full story.European shares suffered their worst monthly performance in four years on Monday, as concerns over a Chinese economic slowdown and a possible US interest rate rise hit the region’s stock markets. Concern that slowing Chinese growth will hamper global expansion returned as US Federal Reserve (Fed) officials signalled they are prepared to raise interest rates as soon as next month.

The CAC 40 in Paris shed 0.47 percent to 4,652.95 points in mid-afternoon trading, and Frankfurt’s DAX 30 gave up 0.38 percent to 10,259.46 points compared with Friday’s close. Treasuries fell since faster price increases erode the value of long-term debt. “The markets are still digesting the China news and it seems that the uncertainty from China’s roller coaster is not over yet,” said Guillermo Hernandez Sampere, who helps manage the equivalent of $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. Global equities were hammered last week as risk-averse investors dumped shares on spreading panic that the flagging Chinese economy — the world’s second largest — could spark a new worldwide recession.

Global markets once had faith in China’s policy makers to manage its economy and markets, but now the image of Beijing is one of incompetence in the face of financial crisis, writes Craig Stephen. In a speech at a conference on monetary policy in Jackson Hole, Wyoming, the Fed’s number two Stanley Fischer said: “We should not wait until inflation is back to two percent to begin tightening.” He added, however, that the Fed needed to “consider the overall state of the US economy as well as the influence of foreign economies on the US economy as we reach our judgement on whether and how to change monetary policy.” “Despite the recent market turbulence, it would appear that an interest rate increase in September still remains on the cards.

US stocks joined a renewed selloff in global equities while commodities tumbled and Treasuries rose on fresh concern China’s efforts to prop up its markets will fail. It continues to depend on the strength of incoming economic data, of which the (US) employment report at the end of this week is the most important,” said Juliet Tennent, an economist with brokerage Goodbody of an official jobs report due on Friday. Nervousness still pervaded Wall Street after last week’s roller-coaster trade, and as some analysts continued to argue that US equities are generally overvalued.

Trading in US equities has been volatile, with the S&P 500 last week alone plunging the most since 2011 to enter a correction, only to rally more than 6% over two days for its best back-to-back gains since the beginning of the bull market in 2009. Over the weekend Nobel economics laureate Robert Shiller, known for his sober analyses of market trends, wrote in The New York Times that based on price-to-earnings ratios, US markets are priced well above the long-term average despite the losses of recent weeks.

The historically low US interest rates of recent years have fuelled investment in global stock markets because they have made it cheap to borrow money for speculation. A rise would likely tamp down that appetite, and continue pulling investment out of slowing emerging economies and back into dollar-denominated US options yielding higher returns. True there were a lot of people who wanted to buy a correction, but after last week they paused and are thinking about how long it is going to last.” The yield on two-year Treasury notes capped a fifth month of gains as Fed vice-chairman Stanley Fischer kept alive speculation that interest rates will increase next month.

Tokyo stocks fell 1.28 percent while Sydney lost 1.07 percent. “Markets have opened the week on a fairly bearish note, with China seemingly at the heart of the concern again,” said IG Markets chief market strategist Chris Weston, who also pointed to Fischer’s comments for the jitters. “Have markets opened on a negative footing because he caused another twist in the ‘will they hike in September’ question?… It seems like we simply need a reason to panic these days.” China’s stocks capped the biggest two-month slide since 2008 as bearish bets in the options market climbed and Goldman Sachs Group Inc. cut its forecast for Chinese growth. 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 ($15.7 billion) to the nation’s market rescue fund and increasing stock buybacks. 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. While that’s more than the median analyst forecast for a 0.1 per cent increase, it’s less than the European Central Bank’s goal of just under 2 per cent.

Oil fell below $40 a barrel this month, the lowest since February 2009, on concern slowing demand in the US and China will leave the global market oversupplied. The Energy Information Administration on Monday trimmed its US production forecast by as much as 130,000 barrels a day for the first five months of the year as it switches to a new survey, the agency said on its website. Bloomberg Adam Haigh in Sydney, Alan Soughley in Singapore, Roxana Zega in Zurich, Paul Dobson in London, Emma O’Brien in Wellington and Nick Gentle in Hong Kong contributed to this story.

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