Shares slide on the "powerful cocktail" of China's collapse, treasury bills and Italy

LONDON (Reuters) – European markets tumbled on Monday as investor sentiment was hit hard by soaring Treasury yields and the slump in the Chinese market sparked by concerns that a growing trade war with governments Could curb Chinese growth.

Chinese markets reopened after a week-long holiday and equities recorded their largest single-day decline since February. The Shanghai-Shenzhen CSI300 fell more than 4% for the second time in more than two and a half years.

This set the tone for the European opening and the stock markets, the pan-European index down 0.8% and the German DAX 0.8%.

The MSCI World Equity index, which tracks stocks in 47 countries, fell 0.35%.

The fall in global equities has boosted dollar demand as investors rushed for security. Faced with a basket of rivals, the US currency rose 0.3%, approaching the peak reached in 14 months in mid-August.

Investor fears related to rising US interest rates, global protectionism, weak emerging markets and an Italian budget line combined to propel stocks into the red in October as global equities rallied. already decreased by more than 2%.

"Europe is stuck between China and the United States, it feels the heat of the dollar's liquidation and anti-trade rhetoric that continues," said Talib Sheikh, director of the Jupiter Flexible Income Fund.

"We do not think it's a trough to buy in the eurozone. Nothing seems hopelessly attractive and, if the headwinds do not dissipate, it seems justified to further reduce valuations. "

The dark mood in China sent shivers down the Asian markets and added nervousness to investors: the benchmark emerging markets equities index MSCI fell 0.8% to its lowest level ever since. May 2017 and is now down 5.5% in October, the biggest monthly loss since January 2016..

Growth concerns led the People's Bank of China (PBOC) to reduce Sunday the level of liquidity that banks must keep in reserve, in order to reduce funding costs, while policymakers worry about the consequences. harmful effects of the tariff policy with the United States.

"China has just cut the reserve requirement ratios and the expansion of monetary policy, which is a response to the slowdown in the Chinese economy, but the market does not believe that it exists enough stimulus measures to curb the slowdown, "said Guillermo Felices, chief strategist. At BNP Paribas Asset Management, calling the current concerns, the markets are facing a "powerful cocktail".

"They have injected more liquidity into the market to contain the slowdown, which has already translated into lower stock prices."

The Chinese slide comes after US Treasury yields hit a seven-year high on Friday, following reports of continued tightening of the labor market and increased inflationary pressures, which is why the US Federal Reserve has continued its upward cycle.

The divergence of monetary policies between Beijing and Washington has pushed the offshore yuan to its lowest level since mid-August, at 6.937 against a dollar.

Brazil outperformed other emerging markets on Monday, after Jair Bolsonaro, a former army captain, won nearly half of the votes in the first round of Sunday's presidential elections.

Brazilian ETFs listed on the London Stock Exchange rose 6 to 7%, while the real was to open up stronger.

The US market is likely to be out of business on Monday as markets close on Columbus Day.

ITALY UNDER PRESSURE

Renewed concerns over the Italian budget have also added to the risk tone of European equities. The FTSE MIB slipped 2.3% to its lowest level since April 21, 2017, as government bond yields hit new heights, putting pressure on bank stocks.

The European Commission told Italy that it was concerned about its budget deficit plans for the next three years, since they are violating what the EU has asked its country to do in July, but Rome insisted Saturday that she was not "backing off" on her expenses.

Italy's 10-year government bonds reached their highest peak in four and a half years on Monday. IT10YT = RR, and the gap in Germany has reached 309 basis points, its highest level in five years. As a result, the euro fell 0.44% to 1.1469 USD, close to its lowest level since 20 August.

The 10-year German government bond, the benchmark for the region, remains close to the four-month high at 0.559%.

Oil dropped to 82.93 dollars a barrel after Washington announced that it could grant waivers to sanctions against Iranian oil exports next month, and that Saudi Arabia would replace any potential deficit from d & # 39; Iran.

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