Global Stocks Drop in Worst Month Since 2012

August 31, 2015 01:10 PM

Global stocks added to losses that have them poised for the worst month in more than three years on fresh concern China’s efforts to prop up its markets will fail. U.S. equities pared declines as crude rallied to a one-month high.

The Standard & Poor’s 500 Index almost erased a decline of more than 1 percent as oil surged after the U.S. cut output estimates and OPEC signaled it’s ready to achieve ‘fair prices.’ The U.S. equities gauge remains poised for the biggest monthly slide in more than three years, amid the rout in global risk assets sparked by China’s shock currency devaluation on Aug. 11. Chinese stocks capped their worst selloff since 2008, while investors sought the safety of the yen.

“The markets are still digesting the China news and it seems that the uncertainty from China’s rollercoaster is not over yet,” said Guillermo Hernandez Sampere, who helps manage the equivalent of $167 million as head of trading at MPPM EK in Eppstein, Germany. “Any panic created out of this high volatility keeps investors out of the market. There’s still no clear message” on when the Fed will raise rates, he said.

The S&P 500 dropped 0.5 percent at 1:24 p.m. in New York, and the MSCI All-Country World Index slid 0.4 percent, poised for the biggest monthly drop since May 2012. The yield on 10- year Treasury notes was little changed near 2.18 percent. U.S. crude jumped 6 percent, while the yen strengthened for the first time in five days

The rout in global equities this month has erased more than $5 trillion from the value of shares in August as Chinese policy makers are trying to bolster the market amid growing concern that its economy may be in worse shape than analysts had estimated.

Trading in U.S. equities has been volatile, with the S&P 500 last week alone plunging the most since 2011 to enter a correction, only to rally more than 6 percent over two days for its best back-to-back gains since the beginning of the bull market in 2009.

The gauge tumbled out of the gates Monday, sliding as much as 1.2 percent in early trading before cutting the drop to 0.1 percent after oil rallied. The Chicago Board Options Exchange Volatility Index rose 3.7 percent, putting its monthly surge past 120 percent, the most since data began in 1990.

“People are happy to tiptoe this week,” Steve Bombardiere, an equity trader at Conifer Securities LLC in New York, said by phone. “There’s so much emotion right now and in this environment you can come in any morning and have something out of Europe or Asia crossing us and that’s what causes us to move. True there were a lot of people who wanted to buy a correction but after last week they paused and are thinking about how long it is going to last.”

While Treasuries fluctuated Monday, the yield on two-year Treasury notes headed for a fifth month of gains as Fed Vice Chairman Stanley Fischer kept alive speculation that interest rates will increase next month. The last time they advanced for that long was in 2006, which was also the last time the Fed increased rates.

Bets on a September increase climbed after Fischer said over the weekend there is “good reason” to believe inflation will accelerate and that the Fed should not wait until it hits its inflation goal to act. Investor attention will focus this week on the government’s August jobs report, due Friday, as the last major data point before the Fed’s meeting on Sept. 16-17.


Bearish Bets

China’s stocks capped the biggest two-month slide since 2008 as bearish bets in the options market climbed and Goldman Sachs Group Inc. cut its forecast for Chinese growth. The Shanghai Composite Index sank 0.8 percent, taking its loss in August to 12 percent after a 14 percent drop in July. Hong Kong’s Hang Seng China Enterprises Index also lost 12 percent in the month.


Stocks fell even as people familiar with the matter said China’s securities regulator asked brokerages to step up their support for share prices by contributing 100 billion yuan ($15.7 billion) to the nation’s market rescue fund and increasing stock buybacks.

The cost of options contracts betting on declines in the China 50 exchange-traded fund has surged to the highest level versus bullish ones since they started trading in Shanghai six months ago.

The yen rose against all of its 16 major peers Monday, with the biggest gains coming versus Taiwan’s dollar and South Korea’s won. It appreciated 0.4 percent to 121.27 per dollar, while the euro added 0.3 percent to $1.1221. The Aussie weakened 0.6 percent, approaching a six-year low.

The euro area’s inflation rate held steady in August, with consumer prices rising an annual 0.2 percent. While that’s more than the median analyst forecast for a 0.1 percent increase, it’s less than the European Central Bank’s goal of just under 2 percent. The ECB is set to give a policy decision on Thursday.

West Texas Intermediate crude surged to $47.84 a barrel. Oil fell below $40 a barrel this month, the lowest since February 2009, on concern slowing demand in the U.S. and China will leave the global market oversupplied.

The Energy Information Administration on Monday trimmed its U.S. production forecast by as much as 130,000 barrels a day for the first five months of the year as it switches to a new survey, the agency said on its website.



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