US stocks joined a worldwide sell-off, after equities’ worst month in more than three years amid continuing concerns that China’s slowdown will weigh on the global economy.
The Standard and Poor’s 500 Index slid 2.2 per cent to 1,927.96 in mid-morning trading New York, following the benchmark’s biggest monthly slide since May 2012. The Dow Jones Industrial Average sank 402.15 points, or 2.4 per cent, to 16,125.88.
The Nasdaq Composite Index lost 2 per cent. “The problem is, as much as China is the catalyst for this, it’s also that we’re seeing weakness in fundamentals here,” said Matt Maley, an equity strategist at Miller Tabak in New York. “A lot of company earnings were hurt by China in the second quarter and it’s only gotten worse. People are losing confidence with the whole situation there breaking down, not just in the stock market but in data as well.”
Germany’s DAX, which has substantial exposure to China, fell by 3 per cent in afternoon trading, underperfoming despite data that showed factory activity at a 16-month high and a jobless rate at a record low.
Equities dropped in Asia, with the Shanghai Composite Index slumping as much as 4.8 per cent, after manufacturing reports pointed to a deepening Chinese economic slowdown.
International Monetary Fund Managing director Christine Lagarde said on Tuesday that the global expansion outlook is worse than the lender anticipated less than two months ago.
“This reflects two forces: a weaker than expected recovery in advanced economies, and a further slowdown in emerging economies, especially in Latin America,” Ms Lagarde said in a speech in Jakarta.
Meanwhile, remarks by Federal Reserve vice chairman Stanley Fischer last week suggested the central bank hasn’t ruled out raising interest rates when the Federal Open Market Committee gathers on September 16th-17th.
That has heightened concerns that the Fed may increase rates even as growth slows around the world. Traders are now pricing in a 38 per cent chance that it will act this month, up from 24 per cent last Wednesday.
“Markets may have overemphasised China’s impact, but markets are also in relatively bad shape and we’re getting more negative technical signals,” said Otto Waser, chief investment officer at RandA Research and Asset Management in Zurich. “It’s a close call for the Fed and as long as markets are in turbulence, I don’t think it will raise rates. If the markets remain too turbulent, they will postpone to October.”
Investors are watching economic data for clues on the likely trajectory of US. interest rates. Manufacturing in the US. expanded in August at the slowest pace since May 2013 as anaemic demand from emerging markets such as China translated into leaner factory order books
European stocks fell on Tuesday, extending the losses of recent weeks after weak manufacturing data from China again raised concerns over the health of its economy.
The pan-European FTSEurofirst 300 was down 3 per cent in the afternoon.
Activity in Chinese manufacturing contracted at its fastest pace for three years in August, an official survey showed on Tuesday, reinforcing fears of a sharper slowdown in the world’s second largest economy despite a flurry of government support measures.
China’s official manufacturing Purchasing Managers’ Index (PMI) fell to 49.7 in August, denoting contraction, after recording 50.0 in July.
“The PMI was below 50, which is a psychologically important level and puts into real focus the fact that China is contracting,” ETX Capital senior sales trader, Joe Rundle, said.
“With the weak data coming out, we’re going to see the negative sentiment from the last few weeks continuing,” he said.
Investor fears over Chinese growth contributed to a drop in European shares in August, with the FTSEurofirst 300 completing its biggest monthly loss in four years on Monday.
In aggregate, euro zone manufacturing growth eased last month, with Italian and French factory PMIs falling.
Among individual fallers on the STOXX Europe 600, Man Group dropped 4.2 per cent. The hedge fund fell after Bloomberg reported that the boss of its China unit was taken into custody as part of an investigation into recent market volatility.
Bucking the trend, Sweden's Elekta rose 6.3 per cent after reporting first quarter earnings, making it the biggest riser on the STOXX Europe 600. Traders cited an upbeat sales forecast as supporting the health care firm.
Reuters
