(Bloomberg) — What has been the weakest month for U.S. stocks began with a selloff as the rout in risk assets around the world resumed amid fresh signs China’s slowdown is hampering global growth.
The Standard & Poor’s 500 Index swooned into September with its third-biggest loss in 2015 as the beating that erased $5.7 trillion from the value of global equities last month continued. Crude tumbled the most in seven months, while emerging-market assets sank. A measure of risk premium on high-yield debt jumped the most in nearly a month in a sign of waning investor confidence, while demand for haven assets surged.
“September is the worst month of the year historically and that’s scaring people a little bit,” Peter Tuz, who helps manage more than $430 million as president of Chase Investment Counsel Corp. in Charlottesville, Virginia, said by phone. “The China PMI seemed to set it off but people are deciding this morning to take some money off the table, just sitting on cash for a while and that’s feeding on itself on top of a down day already.”
The S&P 500 fell 2.9 percent at 3:30 p.m. in New York after plunging 6.3 percent in August for its worst month since 2012. It has fallen 1.1 percent on average in the month of September going back to 1927, according to data compiled by Bloomberg.
Asian shares started Tuesday’s selloff after a gauge of Chinese manufacturing fell to a three-year low. European stocks followed after a reports pointed to weaker growth in the region, and the slump spread to the U.S. amid data showing the slowest expansion in manufacturing in two years. Treasuries and gold climbed while oil pulled back after a three-day rally sent it into a bull market. The yen strengthened the most among major currencies.
The International Monetary Fund on Tuesday joined private forecasters including Citigroup Inc. and Morgan Stanley in anticipating slower expansion as China’s growth weakens and Brazil’s economy shrinks.
The risk premium on the Markit CDX North American High Yield Index, a credit-default swaps benchmark tied to the debt of 100 speculative-grade companies, headed for the biggest jump in almost a month. The gauge rises when investor confidence deteriorates.
Trading in U.S. equities has been volatile. Last week alone, the S&P 500 plunged the most since 2011 to enter a correction before rallying more than 6 percent over two days for its best back-to-back gains since the beginning of the bull market in 2009. The Chicago Board Options Volatility Index jumped 10 percent Tuesday after rising posting its biggest monthly advance in data going back to 1990.
“The market is running around nervous, not sure what to pay attention to,” said Robert Pavlik, who helps oversee $9.1 billion as chief market strategist at Boston Private Wealth. “People are worried about China today but they’re going from one issue to the next issue. The market’s not necessarily trading on news. Everybody seems to be looking for an excuse.”
Stocks in emerging countries also picked up where they left off in August, sliding by 2.3 percent Tuesday. A slowdown in China has repercussions for countries from Brazil to Russia and South Africa, which rely on demand from the world’s second- largest economy for exports of goods. The prospects of the Federal Reserve raising interest rates as soon as this month is also weighing on sentiment.
The Fed is scrutinizing data to determine the timing and pace of its first interest-rate increase since 2006. Attention will focus this week on the government’s August jobs report, due Friday, as the last major data point before the Fed’s meeting on Sept. 16-17.
Boston Fed President Eric Rosengren said Tuesday uncertainty over inflation and global growth justifies a modest pace of interest-rate increases, regardless of when the central bank begins tightening.
Futures traders are betting the Fed will push back a rate increase to later this year. The likelihood they assign an increase in September has fallen to 38 percent, down from 48 percent two weeks ago, according to data compiled by Bloomberg. The chances assume that the federal funds rate will average 0.375 percent after the first hike.
The Stoxx Europe 600 Index lost 2.7 percent. The Shanghai Composite Index fell 1.2 percent and Hong Kong’s Hang Seng China Enterprises Index lost 3 percent. The Chinese government’s manufacturing purchasing managers’ index dropped to 49.7 in August, its first time below 50 since February. The securities regulator said it will encourage listed companies to conduct mergers and acquisitions, buy back shares and pay higher cash dividends.
“The manufacturing index still shows that the economy is in the process of seeking a bottom,” said Wu Kan, a Shanghai-based fund manager at JK Life Insurance. “The market is unlikely to pick up anytime soon.”
The MSCI Emerging Markets Index retreated as benchmark equity gauges in India, Indonesia, Poland, Dubai and the Czech Republic fell more than 2 percent. Turkish stocks fell the most in more than a week after police raids on 23 businesses fueled investor concern that political risk will escalate in the run up to November elections.
Oil fell after the biggest three-day rally in 25 years stalled before data forecast to show larger U.S. crude stockpiles. West Texas Intermediate crude dropped to $45.45 a barrel, while Brent slipped 6.7 percent to $50.57. Data Wednesday will show U.S. crude stockpiles expanded, according to a survey of energy analysts.
Oil prices will remain stuck at $40 to $60 a barrel into 2016 as rising crude supplies overwhelm demand, according to Vitol Group BV, the world’s largest independent oil trader.
The yen appreciated 1 percent to 120.03 per dollar, after a 2.2 percent gain in August, which was the biggest monthly advance since January 2014. The euro climbed 0.4 percent to $1.1258 as the Bloomberg Dollar Spot Index declined 0.1 percent. Australia’s dollar was the biggest loser among major currencies, sliding as much as 1.1 percent to 70.37 cents, the lowest since April 2009.
U.S. government debt rose alongside European bonds. Two- year yields fell for the first time in six days, dropping two basis points to 0.72 percent, while Germany’s benchmark 10-year bund yield fell three basis points to 0.77 percent.
“The perceived risk surrounding China is driving demand for the safest assets,” said David Schnautz, a London-based fixed- income strategist at Commerzbank AG. “A September liftoff is a close call. The strength of the U.S. economy doesn’t warrant the current low rates, but other factors may be taken into consideration.”
–With assistance from Sofia Horta e Costa in Lisbon, Cecile Vannucci, Neil Denslow, Paul Dobson, Anchalee Worrachate and Stephen Kirkland in London, Emma O’Brien in Wellington and Anna- Louise Jackson in New York.