China's financial crisis rattles global equity and commodity markets

Monday, August 24, 2015

China’s financial crisis has rattled global equity and commodity markets this morning. There is a strong sell-off dominating global markets with Chinese stocks tumbling the most since 2007 as recent government support measures failed. The Hang Seng index plunged over 1150 points (-5.2%) towards 21,200, heading for its biggest drop since 2011. Furthermore, the Shanghai Composite index declined sharply 8.5% and the Nikkei index plunged nearly 4.6%. Taipei’s stock market retreated over 7%, showing its worst ever drop in a single trading session. The sharp sell-off continues in the Asian equity markets, confirming earlier concerns that the slowdown in the Chinese economy is deepening strongly.

Hang Seng index plunged

HSI Index (Hong Kong Hang Seng I 2015-08-24 09-10-57

Investors are worried about the knock-on effects for global economy. In the US, the Dow Jones plunged over 500 points (-3.12%) on Friday and has retreated over 10% below its most recent high, ending worst week since 2011. The USD index plunged for a fourth consecutive trading session this morning and retreated towards 94.0 against a basket of currencies, confirming recent rumours that the US Fed might not increase US interest rates in September.

The sharp decline in Chinese stocks rattled European equity markets which opened this morning sharply lower. The DAX index has retreated over 2.7%, while the CAC, IBEX and London equity benchmark indices declined between 2.3% and 2.8%. However, the Euro spiked and rallied strongly to retest the key area of 1.15 against the USD amid hopes that the US Fed will not raise interest rates in September as initially expected, following the Chinese slowdown.

Crude oil breached below the key level of $40 per barrel, tracking sharp declines across the global equity markets. In addition, oil investors remain highly cautious following renewed worries over a serious slowdown of Asian oil demand in the second half of 2015. WTI front month futures retreated over 3% in early trade this morning and Brent front month futures have fallen over 2.5% below $45 per barrel.

The mining sector has been clearly exposed to the Chinese slowing economy. Base metal prices declined sharply this morning, following the general sell-off in the markets. Aluminium tumbled over 1.5% towards $1500. Copper plunged over 2.5% below the key level of $5000, heading for sharp declines for a fourth consecutive month and reaching its lowest level in six years. Lead, nickel, tin and zinc remained in negative territory and posted sharp declines this morning.

Copper tumbled to its lowest level in six years, breaching below 5,000

LMCADS03 Comdty (LME COPPER    3 2015-08-24 09-12-07

Precious metals were also lower, against any belief that they could act as safe-haven during the Chinese crisis. Gold hovered around $1150/ounce and silver dropped over 1% towards $15. Platinum and palladium also posted sharp declines.

  

Events for today:

0830

DE

Aug

Markit Composite PMI Flash

0900

EZ

Aug

Markit Composite PMI Flash

1330

US

Jul

Chicago Fed

1445

US

Aug

Markit Manufacturing PMI

 

 

All times UK Local Time

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