Photographer: Xaume Olleros/Bloomberg

Charting the Markets: China Casts a Shadow Over Equities

Euro sinks for seventh week versus the Japanese yen, gold is set for a third annual decline and European stocks fall for the first day in three.

Global stocks fell for the first time in three days as a slump in Chinese equities spread nervousness across Asia and Europe. The Shanghai Composite Index sank 5.5 percent, its biggest drop in three months, as a slide in industrial profits adds to recent evidence the nation's economy is still deteriorating. Regulatory probes into some of China's largest brokerages also weighed on sentiment. U.S. financial markets return for a half-day of trading after yesterday's Thanksgiving holiday.

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The euro is set for its worst weekly run against the yen since 1999 as anticipation builds ahead of next Thursday's European Central Bank meeting. Currency traders say the path of the common currency from here depends on the ability of the ECB to surprise investors. A 0.1 percentage-point cut in the deposit rate is fully priced in, according to futures prices. Since ECB President Mario Draghi signaled further stimulus at the last meeting on Oct.22, the euro has fallen against all 16 of its major peers except the Danish krone. Today the euro fell to an April low against the yen, having sunk 10 percent so far in 2015. 

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Gold is on track for its worst stretch of weekly declines since early August. The precious metal has been at the mercy of U.S. interest rate expectations. The odds of a rate hike in December are 72 percent, compared with 35 percent a month ago, according to Bloomberg data. Gold's allure dims in a tightening cycle as, unlike fixed-come assets and equities, it doesn't pay interest or dividends. Holdings in gold-backed exchange-traded products have shrunk to the lowest level since February 2009. Gold is set for a third annual decline, something that hasn't happened since 2000. 

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It's touch and go whether European stocks will rise for a second week. The region's benchmark equity index is little changed over the five trading sessions. Stocks have proved durable to the Paris terror attacks and the after effects. The Stoxx Europe 600 Index has risen 3.5 percent since Nov.13 with all 19 industry groups gaining. The return since the last ECB meeting has been 5.2 percent. The gauge finished Thursday at the highest level in three months.

 

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

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