Reeling world stock markets took another blow yesterday when Chinese shares sank four per cent, as concern about rising borrowing costs and soaring volatility put them on course for their worst week since the height of the euro zone crisis.
Losses on European bourses accelerated and volatility rose yesterday after a modestly lower open.
China’s drop ripped up market confidence again after a second 1,000-point loss this week on the US Dow Jones Industrial index, putting it officially into correction territory.
Capital flow figures also showed a record $30 billion had already been yanked out of stocks during the rout, but even after that, Bank of America’s closely followed “Bull & Bear” indicator was still flashing red and warning investors to sell.
US futures were up 0.7 per cent early in the European trading day, but fell back by late afternoon. Dow Jones futures were last down 0.1 per cent, while S&P 500 futures edged up 0.1 per cent.
The main gauge of European stock volatility extended hit its highest level since June 2016, when the Brexit vote sent markets spiralling.
The yield on benchmark 10-year US Treasuries, a driver of global borrowing costs, was hovering at 2.84 per cent, just short of Monday’s four-year high of 2.885 per cent.
Europe’s mainstay – German Bunds – were barely budging too at 0.74 per cent, as their recent rise in yields left them flirting with another weekly rise, which would mark their longest run of weekly gains in 16 years.
Higher yields are seen hurting equities as they increase loan costs for companies and ultimately consumers. They also present an alternative to investors who may reallocate some funds to bonds from equities.
Japan’s Nikkei shed 2.3 per cent, sealing a weekly loss of 8.1 per cent – also its biggest since February 2016.
For MSCI’s broadest index of world shares, the 47-country ACWI the slump was 6.2 per cent, which puts it on track for its biggest loss since September 2011.
Oil was still slippery with US crude futures down 1.1 per cent at $60.46 per barrel after hitting a seven-week trough of $60.27 on Thursday. Brent crude fell for a sixth straight day too, down 0.8 percent to $64.32 per barrel.