European Stocks Fall Hard as Chinese Devaluation Hurts Markets Globally
London (Aug 12) ) China's second devaluation of the renminbi in as many days caused turmoil in Asia on both the currency and equities markets on Wednesday and was swiftly followed by falls in the main European indices at the open.
The Chinese move was praised by the International Monetary Fund, as it was dressed up as a new method of allowing the daily currency fix to be driven by actual trading patterns and a concession to market forces. But after years of refusing to revalue when the market forces were driving the other way, Beijing's commitment the market still has to be put to the test.
As well as letting the currency slide to boost exports, China published data showing retail sales grew at 10.5% in July -- which though, not exactly poor by Western standards, missed forecasts and was slightly slower than in June. Meanwhile, industrial production and fixed asset investment also came out weaker than expected.
In London, the FTSE 100 was down 1.37% at 6,573.06, while the Continental exchanges were hit even harder. In Paris, the CAC 40 was off 2.63% at 4,964.93, while in Frankfurt, the DAX plummeted 2.32% to 11,031.82. Spain's IBEX 35 slid 2% to 10,929.
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Some of the biggest fallers this morning were companies with big exposure to Chinese consumers, among them British luxury-wear brand Burberry (BURBY), down nearly 3.6% at 1,481 pence, and car makers such as Germany's Daimler (DDAIF), which was down 4.02% at €77.82. It had already fallen 5.15% the previous day. French auto-maker Peugeot (PEUGF) plunged into a similar ditch, down 4.24% at €16.95.
The mining sector, always a bellwether of the health of the Chinese economy, also took a hit, with Glencore (GLCNF) the biggest faller on the resources-heavy FTSE 100, down 6.26% at 179.05 pence.
On a different note, consumer products group Reckitt & Benckiser (RBGLY) slid 3.1% to 5,934 pence, after the U.K. Competition and Markets Authority told it to licence its K-Y personal lubricant range to a competitor for eight years. Reckitt agreed to buy the brand from Johnson & Johnson (JNJ - Get Report) in March last year, but the regulator argues that the combination with Reckitt's Durex brand products will lessen competition in the market, squeezing up prices.
In Asia, Hong Kong Exchanges & Clearing (HKXCF), the operator of both the Hong Kong stock market and the London Metal Exchange reported net profit of HK$4.1 billion ($528.7 million) in the six months to June 30, up 73% on the same period a year earlier. But the stock fell 4.17% to HK$207.4 a share, as the volume of metal traded in London fell over the period and the uncertainty in mainland China continues to destabilize the region's equity markets.
Tokyo's export-focused Nikkei 225 closed down 1.58% at 20,392.77, while in Hong Kong, the Hang Seng finished the day down 2.38% at 23,916.02. China's Shanghai Composite dropped 1.06% to 3,886.32, while the Shenzhen Composite fell 1.54% to 2,249.18.