Coronavirus: China's economic slowdown hits global markets

LONDON, Aug 16 - Global shares slid on Monday after a raft of Chinese economic indicators showed a surprising sharp slowdown in the engine of global growth, just as much of the world races to stem the spread of the Delta variant of COVID 19 with vaccinations.

A 10 - day run of gains for commodity-linked stocks fell to a halt, with commodity-linked stocks falling the most in response to demand from China. The Pan-European STOXX 600 index slipped 0.5% in early trading, following late volatility after high levels of record last week.

Figures on July retail sales, industrial production and urban investment in China all missed forecasts, a trend which is only likely to get worse given the recent tightening of coronavirus restrictions there.

The July data has been adversely affected by the massive flooding in China over that period, plus movement restrictions internally and at key export ports to curb the stubborn appearance of the Delta variant, albeit in small numbers, said Jeffrey Halley, senior market analyst at OANDA.

The latter is weighing on investors' nerves now, especially when one considers the evolution of outbreak in the region from Australia to Singapore to Japan and everywhere in between. But widespread outbreaks and restrictions would be a game changer for the recovery in Asia and possibly beyond, given the likely impact on supply chains, Halley said.

The sudden collapse of the Afghan government and what it could mean for political stability in the region boosted uncertain assets and added defensive assets.

MSCI's All Country World Index, which tracks shares across 49 countries, fell 0.2% on the day. U.S. stock futures also traded lower with E-minis for the S&P 500 and Nasdaq futures 0.2% lower.

Chinese blue-chips were hanging onto gains of 0.2%, perhaps in anticipation of a more aggressive policy relaxation from Beijing.

The data will likely intensify speculation of further reserve requirement cuts in the weeks ahead and be positive for bonds, wrote analysts at TD Securities in a note.

The central bank is also unlikely to welcome the CNY appreciation on a trade weighted basis, while limiting CNY appreciation against USD.

Japan's Nikkei grew 1.7%, while economic growth outpaced projection for June quarter.

Wall Street managed fresh records last week, even as a survey showed a shock slump in U.S. consumer sentiment to the lowest since 2011 amid delta variant fears. The dismal report and China's slowdown combined to pull 10 year Treasury yields down to 1.25%, a drop of 11 basis points in just two sessions.

That also effectively ended a week of gains for the dollar, sending it back to 92.547 against a basket of currencies from a near five-month-high market of 93.195.

The euro climbed to $1.1791 and away from major chart support at $1.1740, while the dollar recoiled to 109.39 yen leaving behind the peak of 110.79 last week

Kim Mundy, a senior strategist at CBA, argued the dollar could rally this week if minutes of the last Fed policy meeting confirm a hawkish shift on tapering.

The minutes are out on Wednesday while Fed Chair Jerome Powell is speaking on Tuesday.

We expect the FOMC to announce it will taper its monthly asset purchases in September if the August payrolls are strong, Mundy said.

We judge a tapering announcement is not widely expected, so if the minutes show the FOMC discussed the possibility of announcing taper as soon as September, we expect the dollar to jump.

The Malaysian Ringgit fell to a one-year low in Asia as Prime Minister Muhyiddin Yassin resigned.

In the commodity markets, gold was dipped to $1,771 following a sudden stop-loss tumble to $1,684 at the end of the last week.

Oil prices eased partly on fears coronavirus travel restrictions would hurt demand, particularly in China.

Brent fell 1.5% to $69.53 a barrel, while U.S. crude lost 1.7% to $67.24 an hour.