LONDON MARKET CLOSE: European Stocks Tumble On Chinese Sell-Off

LONDON (Alliance News) - A heavy sell off of Chinese equities and broader concerns about the health of China's economy hit market sentiment globally Monday, with all of Europe's major indices closing in the red, while US stocks were lower at the London close but off their worst levels.

The FTSE 100 ended down 4.7% at 5,898.87 points. It was the tenth consecutive time the blue-chip index finished without a gain, and the first time since December 2013 that it has closed below the 6,000-point mark. During trading the FTSE 100 touched a low it hasn't seen since November 2013 at 5,768.22.

The FTSE 250 closed down 3.9% at 16,214.28, its fourth consecutive losing session. During trade, it slipped below the 16,000 mark when it touched a low of 15,963.42 not seen since January.

Meanwhile, the AIM All-Share ended down 4.1% at 702.40, having touched a low it hasn't seen since February at 698.30.

In Europe, the CAC 40 ended down 5.4%, touching a January low, while the DAX 30 closed down 4.7%, having hit a low level from December.

At the London close, Wall Street was lower, with the Dow 30 down 2.9%, having lost more than 1,000 points at the open. The S&P 500 was down 3.1% and the Nasdaq Composite was down 2.9%.

However, the three US indices were recovering slightly after the heavy initial sell-off, lifting European indices toward their close in the process.

Sentiment turned negative around the world after a drop in Asian markets, dubbed "Black Monday", amid doubts about the strength of the Chinese economy. The Hang Seng in Hong Kong ended down 5.2%, and the Shanghai Composite lost 8.5%. Both indices finished at lows they haven't seen since March. In Japan, the Nikkei in Tokyo ended down 4.6%.

In another attempt to slow the meltdown in its stock market, China's State Council published the finalized rules to allow pension funds managed by local governments to invest in domestic stock markets.

"Things could, potentially (hopefully?), continue to calm if [Federal Reserve Bank of Atlanta President] Dennis Lockhart is extremely dovish in his comments this evening," said Spreadex analyst Connor Campbell. "However, there is still a long way to go until the Atlanta Fed President speaks, with investors looking down the barrel of some pretty terrifying losses."

Lockhart is scheduled to speak at the University of Berkeley, California at 2055 BST.

As a result of China's weak economic data, yuan devaluation and recent stock market rout, analysts and investors are starting to change their minds and no longer believe that the Federal Reserve will raise US interest rates at its next meeting of September, as previously expected.

"US Federal Reserve fund futures had implied the market gave a 50% chance to a September rate hike as recently as the beginning of last week. This has since sold off dramatically and now stands at around 34%," said Michael Paul, analyst at Brewin Dolphin.

Stephen Boyle, chief economist at Royal Bank of Scotland, said that, while the US is creating jobs, growth has been tepid and recent performance data have been patchy. "Fed members also fretted about the effect of China’s slowdown on the US. As a result, markets pushed back the expected date of the first rise to December," Boyle said.

Alongside the concerns about China, the minutes of the Fed’s July meeting showed Federal Open Market Committee members looking for more convincing evidence on US economic data before raising rates. The "data-dependent" decision on US interest rates from the US Federal Reserve will make investors focus on US economic calendar this week.

US initial and continuing jobless claims and US gross domestic product data are due on Thursday. Investors also also be looking ahead to the Jackson Hole Symposium, starting on Thursday, for insight into the sentiment of Fed officials, though Fed Chair Janet Yellen will not attend.

On the London Stock Exchange, mining stocks led the decliners, with the FTSE 350 Mining sector down 8.6%. Amongst its constituents, Glencore was down 10%, Anglo American down 9.9%, and BHP Billiton down 9.2%.

Separately, Anglo American said it has reached a deal to sell its interest in two copper mines in northern Chile to a consortium for up to USD500 million.

Oil-related stocks also dragged on the market, as crude prices have fallen to new six-and-a-half-year lows. Brent oil hit a low of USD42.51 a barrel on Monday, standing at USD43.12 a barrel at the London close. West Texas Intermediate was trading at USD38.38 a barrel, having hit a low for the day at USD37.74 a barrel.

BG Group lost 6.9%, Royal Dutch Shell 'A' shares fell 6.4%, and BP shares declined 4.8%. In the FTSE 250, Amec Foster Wheeler was down 7.4% and Petrofac also fell 7.4%.

Analysts said oil markets are oversupplied and demand from China is dwindling. Also, following the nuclear agreement reached last month, expectations that Iran will return to its position as one of the world’s biggest oil suppliers were boosted after UK Foreign Minister Philip Hammond on Sunday reopened the country's embassy in Tehran, four years after it was stormed by protesters angry at Britain's backing of sanctions against Iran over its nuclear programme.

Outside commodity stocks, RSA Insurance Group ended down 3.2%, having been the only FTSE 100 constituent to trade higher during the day. Zurich Insurance asked the insurance company for more time to make an offer for the company, the FT reported on Sunday. According to the report, the two insurers made progress on the potential GBP5 billion plus deal over the weekend.

BT Group said its BT Sport service will air the 2017/18 Australia versus England Ashes, and will also show all Australian home cricket international exclusive in the UK from 2016 to 2021 after it secured a five-year rights deal.

The deal will be seen as a further escalation of the company's rivalry with Sky, which currently has an exclusive deal with the England and Wales Cricket Board for all international and domestic matches in the UK until the end of 2019. As a result of that deal, Sky will have the rights to show the 2019 Ashes, which will be held in the UK.

BT shares ended down 4.9%, while Sky ended flat.

In the corporate calendar Tuesday, Antofagasta, Petrofac, Regus, Polymetal International, Al-Noor Hospitals Group and James Fisher & Sons report half-year results. BHP Billiton publishes full-year results at 0730 BST.

In the economic calendar, German Gross Domestic Product is due at 0700 BST, while the German IFO survey is due at 0900 BST. In the US, the Redbook index is due at 1355 BST, and US Markit services and composite purchasing manager's indices are due at 1445 BST. New home sales are expected at 1500 BST.

By Daniel Ruiz; danielruiz@alliancenews.com

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