China contagion revives, world stocks plunge

Global sharemarkets have plunged again on further signs of economic weakness in China.

The Dow Jones Industrial Average on Wall Street fell 470 points after stocks tumbled in Europe and Asia.

The price of oil, which had rallied 27% in three days, slumped. The US oil benchmark was down 7.3% at $US45.61 a barrel. Gold rose 0.7% to $US1140 an ounce.

In other overnight developments, China imposed fresh controls on the export of capital and made it more expensive for investors to pressure the yuan to weaken against the US dollar by adding conditions to futures contracts.

Canada officially went into recession as the economy contracted for a second consecutive quarter between April and June. Gross domestic product fell 0.5% on an annualised basis in the second quarter and the first-quarter decline was revised to a 0.8% drop from an earlier estimate of a 0.6% contraction.

However, the Bank of Canada expects an improvement in the second half of 2015 after lowering its growth forecast for the year to 1.1%, down from a previous forecast of 1.9%.

Market volatility returns
At the Wall Street close, the Dow was down 469.68 points, or 2.8%, to 16,058.35 while the S&P 500 declined 3% and the Nasdaq Composite fell 2.9%.

Hopes that last week’s volatility had passed were dashed when weak manufacturing data in China reversed calmer sessions on Friday and Monday.

The Stoxx Europe 600 closed 2.7% lower and the Shanghai Composite fell nearly 5% before ending the day down 1.2%. Hong Kong’s Hang Seng Index fell 2.2% and Japan’s Nikkei lost 3.8%.

China’s official manufacturing purchasing managers index for August fell to 49.7, from 50.0 in July, marking its lowest level since August 2012. A number below 50.0 implies a contraction.

Separately, the Caixin manufacturing purchasing managers index, a gauge of nationwide manufacturing activity, fell to more than a six-year low in August.

Stock indexes around the world suffered their biggest monthly losses in years in August.

The Stoxx Europe 600 had its largest one-month percentage decline since August 2011. The Dow fell 6.6%, representing its biggest monthly percentage decline since May 2010.

The Shanghai Composite fell 12.5%, notching its third straight month of declines.

IMF sees Asia slowdown
In a speech on the world economy, International Monetary Fund managing director Christine Lagarde told an audience in Indonesia that global growth was weakening and that Asia risks slowing further because of the recent volatility in financial markets.

“Asia as a region is still expected to lead global growth,” she said. But even in Asia, the pace “is turning out a little bit slower than expected – with the risk that it may even slow further given the recent spike in global risk aversion and in financial market volatility.”

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