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Chinese slowdown and commodities rut impact markets

Andrew

European Markets traded lower on Thursday with the Stoxx Europe 600 Index down 2.1 percent at the close of trading. Following the same trend was Germany’s Dax which was down 2.5% and France’s CAC 40 also down 2%, taking the decline since China’s currency move, to a negative 6.6 percent.

There is a mounting concern that global growth is weakening and uncertainty about the timing of a U.S. rate increase fueled a second day of losses for European stocks.

Fresh worries about Greece also added to the pressure on equities, with investors fretting about news that Greek Prime Minister Alexis Tsipras is to announce snap elections.

All in all it’s a combination of factors that are taking down stocks this week, with Chinese growth slowing down, China’s market crash, the oil selloff and fears of all this spreading to the Europe.

In London, stocks pushed down for their 8th straight day as the FTSE 100 Index fell half a percent ; the recent tumble in commodity prices and related shares has contributed to yanking the benchmark into a correction, as it’s down 10.4% from the record close set on April 27.

Even with domestic U.K. growth forecast to expand 2.6 percent; which is double the rate for the euro area and more than the U.S, the concern that China’s economy is slowing dominated sentiment, dragging commodities index to a 13-year low. Companies such as Royal Dutch Shell Plc and Rio Tinto Group, among the biggest components of the FTSE 100, have tumbled more than 16 percent since the gauge hit a record in April.

Even though the U.K. economy is stronger, the biggest companies listed in the index are global companies in the commodities sector, which are currently facing headwinds. Miners and energy shares combined account for 20 percent of the FTSE 100, almost double their weighting in the Stoxx Europe 600 Index.

On the bright side, some mining companies enjoyed a moment in the sun after the rise in gold prices also pushed shares of the metal’s miners up; Fresnillo Plc and Randgold Resources Ltd. rose more than 5.6 percent.

In the U.S, markets opened sharply lower for a third session as investors assess the timing of a U.S. rate increase. Minutes from the Federal Reserve’s July meeting, held before the Chinese yuan devaluation, shed no further light on whether officials will act in September. The dovish statement increases volatility and creates uncertainty for investors.

The decline was led by a slide in technology, consumer and financial stocks as investors continued to grapple with falling oil prices and turbulent foreign exchange markets

The nervousness on Wall Street was apparent from a jump in the CBOE Volatility index which has gained more than 30% over the past three trading days. Meanwhile, U.S. Treasuries and gold rallied as investors fly to safety.

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