On 27 July, 2015 – China sell off rattles markets

Global stocks dropped after the steepest decline in Chinese shares in eight years. Investors are trying to figure out how cooling growth in China could hurt the country’s trading partners.
United States
Stocks sank Monday following a steep sell-off in China and losses in other global markets. The Shanghai Composite plunged 8.5%, the worst fall since 2007 despite government efforts to calm the market. Prices for safe-play assets were up. Utilities stocks, US government bond prices and gold all gained. The Dow Jones industrials were down 0.7%, the S&P lost 0.6% and Nasdaq retreated 1.0%. It was the fifth straight loss for the US stock market. Last week the three major indexes fell between 2% to 3%. Global economic growth concerns remain the focus for investors. Trepidation ahead of this week’s Federal Reserve meeting also weighed on stocks — the central bank is due to announce its latest monetary policy decision on Wednesday.
Teva Pharmaceuticals jumped after it announced it would buy Allergan’s generic drug division for US$40.5 billion in cash and stock. Allergan’s shares also advanced. Republic Airways plummeted after it warned that its operation of regional flights for the nation’s biggest airlines could be disrupted by a pilot shortage and labor standoff. Republic disclosed late Friday that it had cut flying by 4% in early summer and was talking with American, United, Delta and US Airways about further cuts.
In economic news, June durable goods orders jumped 3.4% following a revised 2.1% drop in May. Excluding a significant increase in orders for transportation equipment, durable goods orders still were up 0.8% in June.
Gold at the afternoon London fixing was up US$19.20 to US$1,100.00. Copper futures were down 1.5% to US$2.35. WTI spot crude was down US$1.06 to US$47.08. Dated Brent spot crude was down US$1.67 to US$52.95. The US dollar was up against the Australian dollar. It was virtually unchanged against the Swiss franc and Canadian dollar. However, it declined against the euro, yen and pound. The Dollar Index was down 0.7%. The yield on US Treasury 30 year bond was down 3 basis points to 2.93% while the yield on the 10 year note declined 5 basis points to 2.21%.
Europe
Stocks here followed Asian shares lower Monday sparked by the plunge in the Shanghai Composite. Sectors exposed to China for automobiles, luxury goods, oils and industrial goods were the worst hit. Investors also decided to exercise caution ahead of the Federal Reserve monetary policy meeting on Tuesday and Wednesday. The FTSE declined 1.1%, the SMI retreated 1.4% and both the CAC and DAX lost 2.6%.
Banks including Deutsche Bank, Commerzbank, Société Générale, BNP Paribas and Crédit Agricole declined. Automakers BMW, Daimler, Volkswagen, Peugeot and Renault retreated. Both RWE and E.ON were weaker. Merlin Entertainments was down after it warned of full-year profit. Ryanair dropped after issuing a cautious outlook. However, Reckitt Benckiser gained after its first-half profit rose. UBS, which reported second-quarter results, was down in Zurich. Philips increased after the company reported increased profit for the second quarter. TNT fell even after its second quarter loss narrowed. Pearson dropped after several brokers cut their price targets on the company, which also announced talks to sell its 50% stake in the Economist magazine.
The July Ifo Business Climate Index climbed to 108 from June’s revised 107.5, a four month low.
Asia Pacific
Shares retreated Monday with the exception of the S&P/ASX and All Ordinaries. Markets in Australia were already closed when the plunge in the Shanghai Composite picked up steam. After very significant market interventions in the past month, the relaxed trading curbs of the past week allowed a floodgate of selling to open. Disappointing news on the factory sector late last week and reports of IMF urging to pull back on market intervention may have helped to further sway fragile sentiment. The Shanghai Composite plummeted 8.5% on the day, the biggest one day fall since 2007 and dragging regional markets along for the slide. The Hang Seng lost 3.1%. Also contributing to the declines in Asia was the continued downtrend in commodity prices, weak US corporate results and a stronger yen.
The Nikkei closed 0.9% lower as investors braced for a slew of earnings reports this week. Sentiment was also undermined by losses in export related stocks as the yen strengthened against the US dollar ahead of the upcoming Federal Reserve monetary policy announcement. The yen ticked higher despite weaker than expected corporate services price data for June. Asahi Glass, East Japan Railway, Kansai Electric Power, Tokyo Electric Power, J Front Retailing, Advantest, Mitsui Chemicals and Eisai all retreated. Canon declined before announcing its second quarter results after market hours. Nintendo and Sony tumbled ahead of their earnings due later in the week. Fast Retailing and Fanuc edged higher while Softbank was down.
Australian shares reversed early losses to end firmer led by gains in miners and financials. The benchmark S&P/ASX and All Ordinaries both added 0.4%. BHP Billiton fell to a near six year low before reversing direction to end the session higher. Rio Tinto ended largely unchanged while Fortescue Metals Group rallied. The Kospi slipped 0.3% on concerns over second quarter earnings. The Sensex lost 2.0% in the wake of a continued downtrend in commodity prices, disappointing US corporate results and mounting worries about China’s economy following a fresh turmoil in Chinese markets sapped investors’ appetite for risk.
Global Stock Market Recap

Please remember, the value of investments and the income from them can do down as well as up. Funds that invest in overseas markets may be subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.
Looking forward*
The UK reports its first estimate of second quarter gross domestic product. In the US, June S&P/Case Shiller house price index and July consumer confidence and Richmond Fed manufacturing index will be released.
*Note — all releases are listed in local time.