Chill economic winds from China have left the FTSE 100 nursing its worst monthly losses since May 2012 after a week that saw global stock markets shaken by concerns over the world’s second largest economy.
London’s leading share index lost 6.7% during August while the pan-European FTSEurofirst 300 shed 10% over the same period.
That reflected growing concerns about the outlook for the global economy, as the world’s growth engine, China, appeared to lose steam.
Investors in commodities, shares and emerging market currencies have taken fright over the past month as moves by the Chinese authorities hinted at the true extent of their worries about slowing growth.
Among Beijing’s actions, the biggest shock came from a dramatic devaluation of the yuan in an apparent attempt to shore up flagging exports.
However, the FTSE posted a better than expected weekly performance after it clawed back losses incurred in the wake of Black Monday, when China’s top share index plummeted and took the world’s leading indices with it.
At the close of a dramatic week that saw some of the biggest stock market swings since the depths of the global financial crisis, the FTSE closed up 0.9% on the day at 6247.94. That was a touch above the 6188 level where it started the week, but it was not enough to head off the worst monthly performance in more than three years.
The index had tumbled 4.7% at the start of the week after fresh signs of economic weakness helped send the main Shanghai Composite Index down by almost 9%, leading China’s official news agency to dub the sell-off Black Monday. Despite staging a recovery in recent days, the index lost almost 8% over the week.
For other bourses outside China, optimism about the US economy and fresh emergency measures from policymakers in Beijing to stabilise the market helped power a recovery. By the end of the week, European shares had recouped their losses and Wall Street was on track to do the same.
The turmoil carried a silver lining for investors, as it prompted markets to push back expectations of when interest rates in the US and the UK might finally start to rise after years at record lows.
It has also prompted policymakers at the Federal Reserve, the US central bank, to indicate that a looming interest rate rise might not go ahead as soon as expected. Indications that a rate increase would be delayed in the US helped calm investors unnerved by the prospect of an imminent tightening in credit costs in the world’s largest economy.
The prospect of rates going up had also alarmed global stock markets because it could draw investment funds out of emerging markets and back to the US.
Stanley Fischer, the vice chair of the Fed, said on Friday that he was waiting to see how data and markets unfold over the coming weeks before deciding whether to raise interest rates in September.
When asked by the broadcaster CNBC if the case for a September rate hike was less compelling after the recent market volatility, he said: “It’s early to tell. We’re still watching how it unfolds. So I wouldn’t want to go ahead and decide right now what the case is: more compelling, less compelling, etc.”
That followed comments from his fellow policymaker William Dudley earlier this week that it was unlikely interest rates would rise in September.
One trader in London said: “It looks like we’ve got a bit of a breather after a crazy week. It’s largely been a case of fast money trading in thin markets.”
He added that he had not seen much evidence of long-term shareholders baling out of stocks. “That doesn’t mean there aren’t real issues for the Chinese markets.”
Traders and strategists said fears of a slowdown in global economic growth have yet to leave the market, even if loose monetary policy is expected to support stock prices.
Oil prices had their biggest one-day bounce since 2009 on Thursday, with North Sea Brent and US light crude up by more than 10%. US crude is on track for its first weekly gain in nine weeks, ending its longest decline since 1986.
Global oil markets have fallen by a third since May and are still well under half their value a year ago, thanks to a huge oversupply of fuel and sluggish demand. Worries about China’s economy have compounded the falls in recent weeks.
But analysts said oil markets fell too far, too fast and a rebound was on the cards. A stock market rise, strong US growth data and a pipeline outage in Nigeria provided an excuse for a recovery on Thursday, they said.
This article was written by David Hellier and Katie Allen, for theguardian.com on Friday 28th August 2015 19.12 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010