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Asian Session – Share slump continues as dollar and oil fall on China worries

Shares in Asia followed the 3% slump in US and European markets on Friday to head for another sharp sell-off on Monday. China’s indices were the worst affected, with the Shanghai SE Composite down by over 7% and the Shanghai/Shenzen CSI 300 index down by 8% in late Asian trading. But shares in Japan and Australia were also hit hard, with Tokyo’s Nikkei 225 closing down by 4.6%.

The latest panic in financial markets was triggered by weaker-than-expected manufacturing PMI for China on Friday and the absence of state intervention by Chinese authorities to prop up the markets. Analysts were expecting that the People’s Bank of China would announce some monetary stimulus measures over the weekend but the lack of any policy change exasperated Monday’s losses.

Commodities continued to be hit hard with US crude falling below $40 and Brent crude hitting 6 ½ – year lows at $44.03. Other commodities such as copper also fell sharply, which was down at 6-year lows at $5,001. Gold, which has been rallying on its safe-haven status, was off Friday’s 6-week highs but held above $1100.

The dollar index was near 2-month lows as investors questioned the likelihood of the Fed raising interest rates in September with the worsening situation in China and other emerging market economies. Falling US treasury yields also weighed on the dollar, with 10-year treasuries down by 50 bps at 2.00%.

The dollar was trading around 6-week lows against the yen at 120.97, while the euro continued to gain on increased risk aversion. The single currency broke above the 1.14 handle for the first time since June 22. It was trading at 1.1472 against the dollar in late Asian session. The euro made similar gains against the pound, rising to 0.7334. The pound was also sharply down against the dollar in Monday’s Asian session, dropping to 1.5630.

The Australian dollar plunged to a fresh 6-year low against the greenback on the worsening outlook of the Chinese economy and commodity prices. It hit a low of 0.7200 before recovering slightly to 0.7237.

Other Asian currencies continued to suffer from the current fallout, with the Malaysian ringgit and Indonesian rupiah both hitting new 17-year lows against the dollar. Outside Asia, South Africa’s rand touched 14-year lows of 13.66, while the Turkish lira was close to its all-time low of 3.001 liras per dollar.

The rest of the day is looking to be exceptionally quiet in terms of data. But a speech by FOMC member Dennis Lockhart could attract some attention later today.

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