European Markets Bracing for Impact as China’s Stock Market Plunges
A sudden and sharp reversal in China’s stock market is sending shockwaves through global markets, with investors bracing for a potential ripple effect on European and London-traded assets. The Shanghai Composite index plummeted over 5% on Wednesday, its steepest decline since the pandemic-induced crash of February 2020. The downturn has already started to weigh on metals, commodities, and currencies closely tied to China’s economy, such as the Australian dollar.
Market analysts attribute the sell-off to disappointment over the lack of concrete stimulus measures from Chinese authorities, despite earlier promises of support. While a National Development and Reform Commission news conference was never expected to yield major policy announcements, the absence of reassurances has left investors feeling uneasy. As HSBC economist Jing Liu noted, “more patience is needed” as the market awaits tangible signs of stimulus from the State Council or finance ministry.
The fallout is already being felt in Europe, where mining and luxury stocks took a hit on Tuesday. Further declines in iron ore prices and selling pressure on Rio Tinto and BHP shares in Sydney suggest more pain ahead for these sectors. The New Zealand dollar also slipped below its 200-day moving average after the central bank cut interest rates by 50 basis points, leaving the door open to further easing.
In other market news, Indian government bonds rallied after being added to FTSE Russell’s emerging markets index, while South Korean government bonds were included in the FTSE World Government Bond Index, although trading was halted due to a public holiday. Later today, minutes from the Federal Reserve’s September meeting are due to be released, although their impact may be muted given recent comments from Fed officials highlighting the positive implications of last week’s strong jobs data.
Key market-moving events to watch out for on Wednesday include German trade data and the release of the Federal Reserve minutes.
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