Global bond yields, European stocks surge after China cuts rates

The STOXX 600 Basic Resources Index, whose constituents are mostly mining stocks, and the energy sector fell 10 % and 8.8 % respectively, as commodities slumped to multi-year lows, with China being one of the world’s biggest users of metals and oil.

Germany’s most important stock market index continued to suffer the effects of plunging confidence in Asia on Monday, losing around four percent of its value after a sharp fall in early-morning trading. Investors had been hoping for a cut in bank reserve ratios that would have eased pressure on bank lending and were left unimpressed by Beijing’s alternative of freeing state pension funds to invest as much as 30% of their net assets in stocks.

The pan-European FTSEurofirst 300 was down 5.1 percent to 1,354.98 points by the middle of the trading session, wiping off more than 400 billion euros ($460 billion) from the index’s total market capitalisation. Paper and packaging group Mondi (MNDI) dropped 4.2% to £13.84 and insurer Old Mutual (OML) fell 3.3% to 190.1p.

“It is a key moment for China. Calling it a market disaster is not an overstatement”, said Zhou Lin, an analyst at Huatai Securities. The eurozone’s blue-chip Euro STOXX 50 index also regained some of its losses from the day before, advancing 1.9 percent. Some analysts however were cautioning against the panic. But underlying the gloom is the growing conviction that policymakers and regulators may lack the means to staunch the losses.

China-linked shares again led the stocks sell-off Monday, with Shanghai closing down 8.49 per cent, the biggest daily loss since February 27, 2007.

“Otherwise, it’s going to be a case of watching equities and the extent to which the sell-off follows through from Europe into the US, together with the weakness in commodity prices“. Around midday in New York, the Dow Jones Industrial Average was down 1.38%, the S&P 500 lost 1.78% and the tech-heavy Nasdaq Composite sank 2.06%.

‘While Chinese growth is a concern for global growth, we still believe the Chinese authorities have the firepower to contain downside risks.

“People have gotten spooked a bit with some specific numbers coming from industry – China’s exports are down, the so-called purchasing manager’s index of industry is down”, says David Dollar, senior fellow at the Brookings Institution’s China Center.

Stocks slid after Beijing offered no big policy move at the weekend to support equities, as was widely expected after last week’s 11 per cent plunge. Brent crude fell below $45 a barrel for the first time in more than six years amid signs a global glut will persist as Iran pledged to boost production and U.S. drilling activity sustained an increase.

A slide in the value of the dollar against the Japanese yen is hurting shares in Tokyo, where exporters have benefited in the past two years from a weaker yen.