Alarm bells rang across world markets on Monday as a nine per cent dive in Chinese shares and a sharp drop in the dollar and major commodities panicked investors.
European stocks opened more than three per cent in the red after their Asian counterparts slumped to 3-year lows as a three month-long rout in Chinese equities threatened to get out of hand.
Safe-haven government bonds and the yen and the euro rallied as widespread fears of a China-led global economic slowdown and currency war kicked in.
“It is a China driven macro panic,” said Didier Duret, Chief Investment Officer at ABN Amro. “Volatility will persist until we see better data there or strong policy action through forceful monetary easing.”
With serious doubts now emerging about the likelihood of a U.S. interest rate rise this year, the dollar slid against other major currencies. It was last at 120.25 yen its lowest in three months.
The Australian dollar fell to six-year lows and many emerging market currencies also plunged, whilst the frantic dash to safety pushed the euro to a 6-1/2-month high.
“Things are starting look like the Asian financial crisis in the late 1990s. Speculators are selling assets that seem the most vulnerable,” said Takako Masai, head of research at Shinsei Bank in Tokyo.
Commodity markets took a fresh battering. Brent and U.S. crude oil futures hit 6-1/2-year lows as concerns about a global supply glut added to worries over potentially weaker demand from China.
U.S. crude was down three per cent at $39.20 a barrel, while Brent lost 2.4 per cent to $44.40 a barrel.
Copper, seen as a barometer of global industrial demand, tumbled 2.5 per cent, with three-month copper on the London Metal Exchange hitting a six-year low of $4,920 a tonne. Nickel slid 4.6 per cent to its lowest since 2009 at $9,730 a tonne.
Great fall of China The near nine per cent slump in Chinese stocks was its worst performance since the depths of the global financial crisis in 2009 and wiped out what was left of the 2015 gains, which in June has been more than 50 per cent.
The latest rout was rooted in investor disappointment that Beijing did not announce expected policy support over the weekend after its markets shed 11 per cent last week.
Compounding the real-time falls all index futures contracts slumped by their 10 per cent daily limit, pointing to more bad days ahead.
