China Rout Leads Stocks Lower as Dollar Drops, Treasuries RiseStephen Kirkland and Joseph Ciolli
The biggest slump in Chinese shares in eight years led equities lower worldwide and selling spread to the dollar as the turmoil bolstered speculation the Federal Reserve will keep interest rates lower for longer.
The Standard & Poor’s 500 Index declined 0.6 percent at 4 p.m. in New York, giving it the longest string of losses since January. European stocks fell 2.2 percent and emerging-market shares lost 2 percent. That followed an 8.5 percent slide in the Shanghai Composite Index as Chinese industrial company profits decreased in June. The dollar weakened 1 percent to $1.1091 per euro while Treasuries rose on haven demand. Brent oil relapsed into a bear market.
“The situation in China is causing concern, particularly for international companies that get a good portion of their sales from overseas,” Matt Maley, an equity strategist at Miller Tabak & Co. in Newton, Massachusetts, said by phone. “We’re already starting to see cracks in the earnings picture, so if global growth is going to slow, that will make the cracks bigger.”
The profit decline is the latest evidence of a deteriorating economic outlook for China, while the slump in stocks will be a blow to policy makers who enacted unprecedented measures to stem a $4 trillion rout. In the U.S., orders for business equipment rose in June for just the second time this year, Commerce Department figures showed before a Fed meeting later this week.
A gauge of Chinese stocks in Hong Kong slumped 3.8 percent Monday, while the city’s benchmark Hang Seng Index slid 3.1 percent. The report on industrial profits from the statistics bureau followed data Friday showing a private manufacturing gauge unexpectedly declined in July to a 15-month low.
Chinese officials allowed more than 1,400 companies to halt trading, banned major shareholders from selling stakes, restricted short selling and suspended initial public offerings, spurring a 16 percent rebound on the Shanghai measure through last week from a low on July 8. The International Monetary Fund has urged the nation to eventually unwind the support measures, according to a person familiar with the matter.
Stocks with heavy exposure to China slumped in New York trading. Apple Inc. slipped 1.4 percent, after its worst week in six months. Baidu Inc., China’s largest search engine, lost 4.2 percent. Alibaba Group Holding Ltd. retreated 2 percent.
The iShares China Large-Cap exchange traded fund tumbled 3.9 percent. The fund, which tracks to performance of the FTSE China 50 Index, has lost 24 percent since a high in April.
“We seem to be in a tough period for equities,” said Stewart Richardson, chief investment officer at RMG Wealth Management LLP in London. “There’s a number of indicators such as the commodity prices and China showing a slowing global growth. Any further deterioration in the financial markets that could be triggered by China would push back a rate hike.”
Deals spurred movement for some companies. Teva Pharmaceuticals Industries Ltd. added 16 percent, and Allergan Plc advanced 6.1 percent as the Israeli drugmaker agreed to buy the generic-drug business of Allergan. Teva also withdrew its proposal to buy Mylan NV, which fell 15 percent.
The S&P 500 dropped for the fifth straight day, the longest stretch since January, and closed 4 points above its average price for the past 200 days. The Dow Jones Industrial Average slid 0.7 percent to the lowest level since Feb. 2.
The S&P 500 has declined for four weeks out of five, taking it 3 percent away from its May record through Friday. The benchmark measure is up only 0.2 percent for the month.
The bull market that already rivals anything since World War II in duration is showing signs of fatigue, as U.S. equities are being pushed along by the fewest stocks in more than 15 years.
More than 100 percent of this year’s increase in the S&P 500 is attributable to two sectors, health-care and retail. That’s the tightest clustering for an advancing year since at least 2000, data compiled by Bloomberg show.
The Chicago Board Options Exchange Volatility Index rose 14 percent to 15.60 on Monday. The gauge, know as the VIX, climbed 15 percent last week, its fifth gain in six weeks.
The Stoxx Europe 600 Index declined 2.2 percent as all 19 industry groups fell. The MSCI Emerging Markets Index slid 2 percent to a two-year low.
The dollar dropped against all but four of its 16 major counterparts. The Bloomberg Dollar Spot Index declined 0.4 percent to 1,204.57, after rising to 1,212.78 on Friday, the highest since March 19.
Dollar bulls have been in the ascendancy since the middle of June as easing political tension in Greece allowed traders to focus on the prospects for higher Fed rates. Investors increased bullish dollar bets to 375,137 contracts in the week ended July 21, the most since March, based on data from the Commodity Futures Trading Commission in Washington.
“The U.S. dollar may be a bit weaker because lower commodity prices and weaker growth indicators in China and Asia generally may be generating some doubts that the U.S. economy will be strong enough for the Fed to hike rates in September,” said Greg Gibbs, a strategist at Royal Bank of Scotland Group Plc in Singapore.
The Fed begins a two-day meeting Tuesday as policy makers debate the timing for higher interest rates. Economists surveyed by Bloomberg continued to put the odds for a September rate increase at 50 percent.
Treasury 10-year note yields fell 5 basis points to 2.22 percent. The SPDR Barclays High-Yield Bond ETF slid 0.4 percent to its lowest level since December.
Brent oil fell back into a bear market as rising Iraqi exports and a rebound in U.S. drilling signaled that the global supply glut will grow. The European benchmark crude fell 2.1 percent to a four-month low. The grade has lost more than 20 percent from this year’s highest close.
The Bloomberg Commodity Spot Index dropped 1.2 percent to the lowest since 2002. Copper fell 1.4 percent in London to the least in six years.
Russia’s ruble slid 1.9 percent to 59.59 per dollar, the lowest since March, as oil declined.
Turkey’s lira weakened for a fourth day, losing 1.2 percent, after jets bombed Kurdish rebels in Iraq, expanding a military operation the government started against the Islamic State in Syria last week.