European shares suffers worst monthly performance in four years

European shares suffered their worst monthly performance in four years on Monday, as concerns over a Chinese economic slowdown and a possible US interest rate rise hit the region’s stock markets.

The pan-European FTSEurofirst 300 index closed down 0.2 per cent to record a monthly loss of 9 pe rcent – its worst monthly performance since August 2011. Volumes were relatively thin as the UK market was closed for a public holiday.

Germany’s DAX fell 0.4 per cent and also posted its worst monthly performance since August 2011. The DAX is currently some 17 per cent below a record high reached in April. The euro zone’s blue-chip Euro Stoxx 50 index and France’s CAC both declined by 0.5 per cent.

US stocks joined a renewed selloff in global equities while commodities tumbled and Treasuries rose on fresh concern China’s efforts to prop up its markets will fail.

The Standard and Poor’s 500 Index added to losses that have it poised for the biggest monthly slide in more than three years, as the rout in global risk assets sparked by China’s shock currency devaluation on August 11th resumed.

Chinese stocks capped their worst selloff since 2008, while investors sought the safety of US government bonds and the yen.

“The markets are still digesting the China news and it seems that the uncertainty from China’s rollercoaster is not over yet,” said Guillermo Hernandez Sampere, head of trading at MPPM EK in Eppstein, Germany.

“Any panic created out of this high volatility keeps investors out of the market. There’s still no clear message” on when the Fed will raise rates, he said.

The Standard and Poor’s 500 Index dropped 0.9 per cent at 11:10 am in New York, headed for its worst monthly slide since September 2011.

The MSCI All-Country World Index slid 0.8 per cent, poised for a 6.8 per cent decline in August, the biggest drop since May 2012.

The yield on 10-year Treasury notes fell two basis points to 2.16 per cent. Russia’s ruble slid as oil declined, while the yen strengthened for the first time in five days.

The rout in global equities this month has erased more than $5 trillion from the value of shares in August as Chinese policy makers are trying to bolster the market amid growing concern that its economy may be in worse shape than analysts had estimated.

Trading in US equities has been volatile, with the S&P 500 last week alone plunging the most since 2011 to enter a correction, only to rally more than 6 per cent over two days for its best back-to-back gains since the beginning of the bull market in 2009.

The Chicago Board Options Exchange Volatility Index is up 135 per cent in August, headed for a record monthly jump. While Treasuries advanced on Monday, the yield on two-year Treasury notes headed for a fifth month of gains as Fed vice chairman Stanley Fischer kept alive speculation that interest rates will increase next month.

The last time they advanced for that long was in 2006, which was also the last time the Fed increased rates. Bets on a September increase climbed after Fischer said over the weekend there is “good reason” to believe inflation will accelerate and that the Fed should not wait until it hits its inflation goal to act.

Investor attention will focus this week on the government’s August jobs report, due on Friday, as the last major data point before the Fed’s meeting on September 16th–17th.

China’s stocks capped the biggest two-month slide since 2008 as bearish bets in the options market climbed and Goldman Sachs cut its forecast for Chinese growth.

The Shanghai Composite Index sank 0.8 per cent, taking its loss in August to 12 per cent after a 14 per cent drop in July.

Hong Kong’s Hang Seng China Enterprises Index also lost 12 per cent in the month. Stocks fell even as people familiar with the matter said China’s securities regulator asked brokerages to step up their support for share prices by contributing 100 billion yuan ($15.7 billion) to the nation’s market rescue fund and increasing stock buybacks.

The euro area’s inflation rate held steady in August, with consumer prices rising an annual 0.2 per cent. While that’s more than the median analyst forecast for a 0.1 per cent increase, it’s less than the European Central Bank’s goal of just under 2 per cent. The ECB is set to give a policy decision on Thursday.

- Bloomberg