European stocks rallied with U.S. equity-index futures after Monday’s $2.7 trillion global equity wipeout, while the yen retreated with gold. Chinese shares headed for the biggest four-day drop in almost 19 years.
Futures on the Standard & Poor’s 500 Index rose 1.9 percent after the U.S. benchmark entered a correction for the first time since 2011. The Shanghai Composite Index took losses since Wednesday beyond 20 percent, sucking Asian equity gauges lower. The dollar strengthened versus major peers as 10-year Treasury yields rose for the first time in five days. Oil climbed 1.6 percent in New York after falling to $38.24 a barrel.
“Our bottom line is that the world’s still not a bad place,” said David McDonald, Sydney-based chief investment strategist for Australia at Credit Suisse Group AG’s wealth management and private banking unit. “Fundamentals aren’t as bad as the headlines would suggest. It’s just a case of whether you would want to rush in now or perhaps wait until it settles down a bit more.”
China’s decision to cut the value of the yuan two weeks ago has sent convulsions through global markets, sending all but the safest of assets tumbling amid speculation that the world’s second-largest economy is in more trouble than previously thought. The rout has driven gauges of volatility to multi-year highs and sent bond yields tumbling as investors wound back bets that the Federal Reserve will begin raising interest-rates as soon as next month.
Europe Rebound?
The Stoxx Europe 600 Index advanced 1.5 percent, clawing back some of the losses from a 5.3 percent retreat on Monday that was the biggest since 2008. BHP Billiton Plc advanced 3.2 percent in London after a 9.2 percent drop on Monday saw it close at it lowest level since 2009. The world’s biggest mining company reported a52 percent drop in earnings amid weakness in China, its biggest market.
Germany’s DAX Index increased 1.4 percent after the benchmark gauge for Europe’s largest economy entered a bear market Monday.
U.S. futures signaled the first day of gains for the S&P 500 since Aug. 17. The U.S. benchmark dropped 3.9 percent to 1,893.21 at the close in New York, 11 percent below its May record. Contracts on the Dow Jones Industrial Average advanced 1.7 percent and those on the Nasdaq 100 Index increased 1.5 percent.
A gauge of options prices on U.S. equities surged as much as 90 percent Monday to touch the highest level since January 2009. The Chicago Board Options Exchange Volatility Index, or VIX, finished the day at 40.74, the highest close since October 2011.
Asian Retreat
The MSCI Asia Pacific Index fell 0.9 percent as the region’s major markets gave up earlier gains amid the downdraft from China. Japan’s Topix index dropped 3.3 percent, erasing a 1.9 percent advance. The currency weakened to 119.37 per dollar after surging 3 percent to 118.41 on Monday, the strongest since February.
The Shanghai Composite dropped 7.6 percent, falling below 3,000 for the first time in eight months. A gauge of Chinese companies in Hong Kong slid 2 percent, erasing earlier gains. The Hang Seng Index, which entered a bear market Friday, retreated 0.3 percent.
‘Panic Selling’
The mainland’s benchmark equity is down 42 percent since peaking on June 12. Unprecedented efforts by the government to halt the rout have come to nothing, with the gauge erasing all gains since the beginning of rescue efforts before going on to wipe out 2015’s advance.
“It’s panic selling and it’s an issue of confidence,” said Wei Wei, an analyst at Huaxi Securities Co. in Shanghai. “It looks like investors have all lost their confidence so there’s still room for the market to go down further. The government won’t step in to rescue the market again as it’s a global sell-off and it’s spreading everywhere now. It’s not going to work this time.”
China’s central bank added the most funds to the financial system in open-market operations since February as currency-market intervention to prop up the yuan strained the supply of cash.
The offshore yuan rallied 0.3 percent in Hong Kong. The one-weekinterbank savings rate for offshore yuan jumped as much as 840 basis points to 22.9 percent, the highest in data going back to 2010. That compares with 3.3 percent at the start of the month.
The S&P/ASX 200 Index climbed 2.7 percent in Sydney and the Kospi index added 0.9 percent in Seoul. Taiwan’s benchmark stock gauge jumped 3.6 percent, while Singapore’s advanced 1 percent.
The Bloomberg Commodity Index rose 0.3 percent after finishing Monday at its lowest in 16 years.
Oil climbed, stemming its decline to a six-year low, while swelling U.S. crude stockpiles kept the market under pressure amid a global selloff. West Texas Intermediate for October delivery rose as much as 89 cents to $39.13 a barrel on the New York Mercantile Exchange. Brent added 1.3 percent to $43.24 a barrel in London.
source: Bloomberg
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