Global Sell-Off Continues With China’s Shanghai Composite Index Closing Down 8.49 Percent

aciThe global stock sell-off is showing little signs of abating on Monday and moved into high gear in Asia with all Asian stock indexes deeply red and European stock indexes extending the sell-off from last week.

U.S. stock futures are currently down over 2 percent after coming down from 3 percent late on Sunday.

China’s Shanghai Composite Index closed down 8.49 percent on Monday, erasing 2015 gains, and France’s CAC 40 Index is currently trading lower by 2.50 percent.

U.S. WTI crude fell below $40 a barrel to $39.10 on Monday, hitting a fresh 6 1/2 year low and Brent crude moved below $45 and is now trading at $44.28.

Investors are fleeing riskier assets in global equity markets and moving into safer assets such as the 10 yr. U.S. treasury.

The yield on the 10 year U.S. treasury fell below 2.00 percent briefly on Monday while its price rises and is now at 2.01 percent.

A batch of  economic data over the past couple of weeks in China ranging from weak manufacturing, slowing exports that dropped 8 percent in July, and a falling producer price index that dipped 5.4 percent in July are causing investors to question whether China can reach its 7 percent GDP growth target for 2015, which would mark the slowest pace of growth in 6 years.

A U.S. dollar that has rallied throughout much of 2015 has already weakened growth prospects for the world’s largest economy and has hurt earnings forecasts for U.S. corporations that have international exposure and benefit from a weaker dollar.

Last week the U.S. dollar fell to its biggest 2 week decline in 2 months amid growing speculation that the U.S. Federal Reserve may wait longer before raising interest rates and not initiate a rate hike in September.

The U.S. dollar has moved lower today against the euro and the pound.

Ian Harnett, a co-founder director from Absolute Strategy Research and chief investment strategist, told Bloomberg T.V. that over half of the global markets that they monitor are in correction territory now.

Harnett said that he is bullish in the long term but is still waiting for the monetary policies to adjust and commodity prices to stabilize with the U.S. dollar coming down further.

“You have got to see some policy adjustment. The scope for policy error here is still high. And you have got to see some signs that commodity prices are stabilizing” Harnett said.

“The dollar is starting to come down. That for us is one of the critical factors and that will then start to stabilize some of these risk assets more generally” Harnett added.

-John Schweitzer

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