US stocks suffered the biggest drop in four years on Monday as investors sold off equities on concerns slowing economy of China will drag down global economic growth. The dollar weakened as market participants revised further downward expectations of interest rate hike in September given the dimmer outlook for world economy and selloff in US markets. The ICE US Dollar index, a measure of the dollar’s strength against a basket of six currencies, closed down 1.7%. The S&P 500 Index opened down as much as 5.3%, and closed with a decline of 3.9% to 1,893.21, the lowest level since October 2014. Nearly all 500 members of the index closed with a loss. Trading was heavy as nearly 14 billion shares changed hands on Monday, the largest volume since August 10, 2011. The course of US stock market will largely depend on incoming US economic data and further performance of China’s economy. Analysts now estimate second-quarter earnings will be 1.3% higher, sharply above the 3% decline expected at the start of last month. Stock futures are rising today, pointing to possibility of market recovery. Today at 14:00 CET June Case-Shiller price index will be released. The tentative outlook is positive. At 14:00 CET July new home sales, Conference Board’s consumer confidence index and Richmond Fed’s manufacturing index for August will be published. The tentative outlook is positive.
European stocks plunged on Monday in a global selloff prompted by worries about China’s slowing economy. The euro gained about 1.7% against the dollar. Stoxx Europe 600 sank 5.3%, suffering the biggest one-day percentage loss since December 2008. Germany’s DAX 30 fell 4.7% to end below 10,000 at 9,648.43 for the first time since January. UBS cut its 2015 and 2016 growth forecasts for euro-zone gross domestic product on Monday after growth in the first two quarters of this year was slower than it had anticipated. UBS now expects 2015 growth of 1.4% compared with an earlier projection of 1.6%, and forecasts GDP expansion in 2016 of 1.9% versus its previous outlook of 2%. European stock futures are rising today, reflecting market expectations of a rebound. Today Goldman Sachs downgraded their outlook on equities due to the impact of the drop in China by reducing their 3-month recommended asset allocation in equities to ‘neutral’ from ‘overweight’. Ifo institute’s report today showed German business confidence unexpectedly rebounded as business climate index climbed to 108.3 in August from 108 in July.
Nikkei fell 4% today in a choppy session as investors sold off shares with exposure to China. Today head of the ruling Liberal Democratic Party’s decision-making General Council and a close aide of Premier Shinzo Abe said Japan’s government must make a supplementary budget for fiscal spending to support the economy, but finance minister Taro Aso said the government had no immediate plans to devise a new fiscal package.
Chinese stocks plunged today as Shanghai Composite Index tumbled 7.6 % despite the injection of $23.4 billion into the financial system by the central bank.
Oil is edging higher today after October Brent crude dropped 6.1% on Monday to $42.69 a barrel, dipping below $43 for the first time since March 2009.
Gold is extending losses today as dollar is rebounding and Asian equities recovered from three year lows after yesterday’s selloff. Gold futures lost 0.5% on Monday.
Copper is edging higher today after falling 1.9% to the lowest level in more than six years on Monday.