Commodity-linked stocks fall as China woes hurt European stocks

European shares joined a China-driven global sell-off on Monday, dragged down heavily by commodity-linked stocks as anxiety over trade frictions with the US sent the country's yuan below 7 per dollar for the first time in a decade.

The pan-European STOXX 600 index fell 1.5 per cent, adding to a 2.5 per cent fall on Friday, its worst day so far in 2019, as traders dumped stock investments in favour of perceived safe-havens like government bonds.

The latest batch of selling dates back to US President Donald Trump's threat late last week to slap 10 per cent tariffs on another $300 billion in imports from China, abruptly ending a month-long truce in the trade war.

Commodities-linked stocks bore the brunt of the hit, falling 3 per cent as China's offshore yuan hit a record low, making it expensive for the world's biggest copper consumer to buy dollar-denominated metals.

With the escalating trade war giving Beijing fewer reasons to maintain yuan stability, analysts said they expect the currency to continue to weaken.

“The fact that Beijing has allowed the yuan to fall so much suggests that China is using this as a tool against the US because if the yuan is weak then it will likely boost exporters in China,” said CMC Markets analyst David Madden.

“That is also something that might agitate Trump. So the fact that they are not intervening with the slide in their currency is somewhat of an intervention in itself.”

Beyond the resources sector, chipmaker AMS lost around 6 per cent in the sell-off and luxury retailer LVMH, also heavily exposed to China, fell 2.7 per cent.

The resurfacing on trade tensions however, has euro zone money markets now pricing in a 100 per cent chance of a 10 bps rate cut by the European Central Bank in September.

Shares in HSBC matched the roughly 1 per cent fall in the pan-European index after it announced the surprise departure of Chief Executive Officer John Flint, along with a 16 per cent rise in first half profits.

The Asia-focussed bank, grappling with the escalation of the trade war with China and a swing towards a new round of monetary easing, also said it would buy back $1 billion in shares.

Shares in German group Metro fell 6 per cent after Czech businessman Daniel Kretinsky's investment vehicle denied reports it was considering raising its takeover offer price for the German retailer and wholesaler.

Takeaway.com shares dipped 0.7 per cent after it agreed to buy British rival Just Eat to create the world's largest online food delivery firm outside China. Shares of the British firm fell 1.6 per cent.

Evonik shares slipped 2.4 per cent after the US Federal Trade Commission said on Friday it was suing to stop the German chemical maker's proposed purchase of rival hydrogen peroxide maker PeroxyChem Holding Company.

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