China’s Black Monday sends markets into freefall

European stocks plunged on Monday (August 24th) after shares in China fell by more than eight per cent amid a worsening economic outlook.

Indices were firmly in the red as the rout in China fed into markets around the globe, with more than $5 trillion wiped off the value of global stock markets since the People’s Bank of China (PBoC) devalued the yuan two weeks ago.

The Shanghai Composite Index, which lost 11.5 per cent last week, suffered its worst day since 2007 and lost 8.5 per cent as hopes of a rate cut were dashed.

Taking their cue from China, Asian markets were down with the Nikkei in Japan and Hong Kong’s Hang Seng both shedding around five per cent.

Kit Juckes of Société Générale says: “Markets are afraid of further economic weakness in China, further pain in global commodity markets and uncertainty about Fed and PBoC policy - what they will do and what the impact will be.”

The FTSEurofirst 300 index dipped 2.5 per cent and has not lost nearly ten per cent in August.

In London, the FTSE 100 plunged by almost three per cent, after losing five per cent last week. The DAX was down by a similar margin, sliding below 10,000 for the first time this year. France’s CAC lost 2.9 per cent.

Futures trading indicated US markets were on course to open sharply lower, further extending losses after Friday’s plunge.

Miners Glencore, Anglo American and BHP Billiton were among the biggest losers, shedding five per cent as commodity prices fell further.

US oil fetched less than $40 a barrel, dipping to its lowest level in more than six years.

Emerging market currencies were badly hit, with the South African rand hitting an all-time low. Russia’s ruble also sank to its lowest level ever against the dollar amid the collapsing oil prices.

The greenback was down against the euro, however, as the market turmoil fuelled doubts the Federal Reserve will hike rates in September. EUR/USD added one per cent to touch on 1.15. Sterling was also up against the dollar, as GBP/USD held above the 1.57 handle.