(MENAFN- Khaleej Times) Concerns over China dominated financial markets on Monday, with the biggest fall in Shanghai shares in eight years driving stock markets and prices of major commodities lower across the board.
The dollar was weak ahead of the week's main set piece - Wednesday's Federal Reserve policy decision and statement - with a better-than-expected survey of German business sentiment prodding the euro above $1.11 for the first time in two weeks.
But it was the stunning 8.5 per cent fall in Shanghai that drove most of the moves early in the European day: Share indices in Frankfurt, London and Paris all slumped by more than one per cent.
Traders and investors said that was all rooted in broader concerns over global growth midway through the corporate results reason and following a poor economic reading out of China late last week. Wall Street was also expected to open more than half a per cent lower.
"This really has its roots in nervousness that began in the US at the end of last week," said Andy Sullivan, a portfolio manager with Swiss investment firm GL Financial Group.
"Shanghai is an artificial market at the moment reliant on government support, and they have thrown the kitchen sink at it in recent weeks. The selling just ratcheted up steadily this morning."
The CSI300 index of the largest listed companies in Shanghai and China's other major market, Shenzhen, ended 8.5 per cent lower. Japan's Nikkei slipped more than one per cent, while MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.6 per cent.
Both copper, for which Chinese demand is an important driver, and the broader Thomson Reuters CRB commodities index hit their lowest point in six years. Copper futures fell another one per cent on Monday.
"The drop in Chinese equities and the negative growth backdrop in China are clearly going to leave you very concerned about Chinese demand in the months ahead," said Nic Brown, head of commodities research at Natixis.
Despite the still patchy economic news, many analysts still expect the US central bank to raise interest rates in September. Fed chief Janet Yellen drove the dollar higher earlier this month by saying a move this year was on the cards, but she has gone no further than that.
"We expect Fed voters to pull the trigger in September, but for the path to interest rate normalisation to be a long one given the global risk profile," analysts at Australia and New Zealand Banking Group said in a note to clients.
Expectations of a hike have slowly pushed up US Treasury yields and widened the dollar's premium over the euro. But the euro has also tended to rise when investors get more concerned about global growth and rein in riskier bets, as they were doing on Monday.
Indian stocks fell the most in eight weeks as investors weighed the impact of a slump in China's stocks and the rout in commodities on the global economy.
Tata Motors retreated to a 16-month low amid concern that China sales of its Jaguar Land Rover unit may slow. Tata Steel and Vedanta, India's top copper producer, slid to their lowest since August 2013. Larsen & Toubro, the most valuable engineering company, sank the most in two months, and ICICI Bank extended last week's five per cent plunge.
The S&P BSE Sensex tumbled two per cent to 27,561.38 at the close, its steepest drop since June 2. Copper extended losses from a six-year low and industrial metals declined as equities plunged the most since 2007 in China, the world's biggest user of raw-materials from aluminium to zinc. The Sensex slid 1.2 per cent last week as earnings from some of India's biggest companies disappointed investors.
Brent crude fell 84 cents to $53.78 a barrel, touching its lowest in almost four months, adding to falls which are expected to put more downward pressure on global inflation.
"In the next couple of months, even if the global oversupply and seasonal weakness are becoming priced in, it is difficult to see where any price uplift will come from," said Societe Generale oil analyst Michael Wittner.
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