Photographer: Xaume Olleros/Bloomberg

Charting the Market: New Month, Same China

Déjà vu? Asian and European stocks show no sign of shaking off last month's decline

China continues to dictate the mood of markets. On Tuesday, Asian and European stocks resumed where they left off in August after China's official factory gauge fell to a three-year low. The report suggests the world's second largest economy has yet to find a bottom.

Last month, $5.7 trillion was wiped off the value of global equities after China devalued the yuan. The move prompted a 12% slide in the nation's stocks, capping the worst two months since 2008. The S&P 500 Index sank 6%, the biggest monthly drop since May 2012. Europe's Stoxx 600 plunged 8.5%, the worst month in four years.

On Tuesday, Asian stocks took their cue from China. The Shanghai Composite closed 1.2% lower, having dropped as much as 4.75% after the disappointing manufacturing report. It's believed state-backed funds are using afternoon share purchases to boost the market before this week's World War II victory parade. The MSCI Asia Pacific Index dropped over 2% after an 8.5% sell-off in August, the biggest in three years. That's $940 billion of lost value. 

Australia's dollar dropped to its lowest since April 2009 after the nation's central bank left interest rates unchanged, as expected, at a record-low 2%. The falling currency is cushioning the impact of lower commodity prices and a deteriorating economy in China, its key trading partner. Traders are pricing in a 50-50 probability of another rate cut by November as Australia struggles to cope with slumping prices for key resource exports. In August the Australian dollar fell 2.7% against the greenback ahead of a likely rise in U.S. interest rates in coming months.

Oil fell after the biggest three day jump in 25 years. The 27% move wiped out all of August's losses and left crude at its highest since July 21st. The monthly gain was the first since May as concerns eased over a slowdown in the U.S. and amid signs the global glut may diminish. Investors are now looking ahead to Wednesday's report on U.S. stockpiles, which may show a 700,000 barrel increase in inventories. Crude is still 22% below June's high and has sunk almost 50% in the past 12 months.

Mark Barton is a presenter on Bloomberg TV. Follow him on Twitter @markbartontv

 

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