China fears halt market recovery

LONDON - Agence France-Presse

REUTERS photo

Shanghai’s stock market slumped more than six percent and European stocks declined as oil prices dipped on Jan. 26, reversing a brief global rally on hopes of fresh central bank stimulus.

In late morning deals, Europe’s main equity markets were falling by around half a percent.

Russia’s stock exchange though tumbled by 3.5 percent and the ruble slipped as oil’s fresh drop continued to hit one of the world’s biggest energy producers.

“A slump in Chinese stocks... and further weakness in crude oil has heightened concerns about global economic growth,” said Manoj Ladwa, analyst at broker TJM.

After dropping under $30, crude futures were back above the psychological threshold and down only slightly on the day.

British no-frills airline Easyjet on Jan. 26 forecast a jump in annual profits as low oil prices slash the cost of jet fuel, which is refined from crude.     

In Asia meanwhile, a six-percent-plus collapse for Shanghai’s main stocks index led Asian markets lower.
There had been a glimmer of hope that the worst start to a trading year on record may be easing, with a surge across all assets spurred by hints from the European Central Bank on Jan. 28 of further monetary policy easing.

A report suggesting the Bank of Japan (BoJ) was considering similar moves fanned the optimism, with crude surging at the end of the week and equities seeing blistering gains.

But analysts said the euphoria subsided as the realization set in that the oil market is far too oversupplied for its weak demand, and with China’s economy continuing to struggle.

Shanghai’s slump came despite the People’s Bank of China pumping $67 billion into the money market to ease tight liquidity ahead of the Lunar New Year holiday.

“Some investors have no desire to continue fighting before the upcoming (Lunar) holiday, so the market is quite vulnerable to external factors,” Zheshang Securities analyst Zhang Yanbing told AFP.

Also taking a painful hit was Tokyo’s Nikkei, which lost 2.4 percent, while Hong Kong slumped 2.5 percent.

Dealers are awaiting rhetoric due out of the U.S. Federal Reserve when it ends its policy meeting on Jan. 27, ahead of the BoJ gathering on Jan. 29.

The Fed’s last meeting saw it lift interest rates for the first time in almost a decade, citing confidence that the U.S. and global economies were picking up.  
   
“Today sees the start of the Fed’s two-day meeting and... the market is expecting a more dovish tone,” said James Hughes, chief market analyst at GKFX trading group.

“The global sell-off, continued commodity rout and Chinese slowdown are all going to concern the Fed and could leave the door open to a rethink on the date of the next rate hike,” he added.