By Christopher Whittall and Tommy Stubbington
China's devaluation of its currency jolted global markets
Tuesday, hitting stocks and commodities and boosting government
bonds.
The S&P 500 fell 1.0% by late morning, while the Dow Jones
Industrial Average lost 1.3%. The pan-European Stoxx Europe 600
index closed 1.6% lower.
Oil and metals prices also fell sharply, while demand for haven
assets pushed down bond yields in the U.S. and Europe, as investors
worried that Beijing's move signaled concerns over growth in the
world's second-largest economy.
Financial markets have reacted to signs that Chinese authorities
believe it is necessary to act to boost flagging growth, said Ewen
Cameron Watt, chief investment strategist at BlackRock's Inc.'s
Investment Institute.
"For markets today it's a case of shoot first, ask questions
later," said Mr. Watt, whose firm oversees $4.7 trillion in
assets.
A weaker yuan could hurt the competitiveness of firms outside
China by making their goods and services relatively more expensive,
while companies that generate sales in China could find revenue and
profit generated in yuan are worth less in their home currency.
"Worries about what this might mean for the competitiveness of
the West versus the East" are driving the stock market selloff,
said Chris Jeffery, an asset-allocation strategist at Legal &
General Investment Management.
Shares of companies that export to China, including luxury-goods
firms, car makers and mining companies, came under the most intense
pressure.
In Europe, shares in LVMH Moët Hennessy Louis Vuitton SE fell
5.4% and Gucci owner Kering SA was 3.9% lower. Car maker BMW AG
lost 4.3% and Daimler AG fell 5.2%, dragging Germany's export-heavy
DAX index to a 2.7% decline.
Shares in BHP Billiton PLC were down 5.0% and Rio Tinto PLC lost
3.1%.
Commodity prices, which are sensitive to Chinese demand, fell.
Brent crude oil was down 3.0% at $48.89 a barrel as European stock
markets closed.
Copper hit its lowest level since July 2009 at $5,109 a ton.
Aluminum also sank to a six-year low at $1,573.50 a ton.
Yields on 10-year U.S. Treasury bonds fell 0.09 percentage point
to 2.13%. The equivalent German yield fell a similar amount to
0.59%. Yields fall as prices rise.
Most Asian bourses fell and currencies sank. Japan's Nikkei 225
index fell 0.4%. The Shanghai Composite Index ended flat.
"The market is still trying to work out if this is a one-off
move or the start of something more significant," said Talib
Sheikh, a multiasset fund manager at J.P. Morgan Asset Management,
which oversees $1.8 trillion in assets.
"We think the risks are they'll have to engage in further
measures" to weaken the currency, he added.
Athens stocks bucked the trend after Greece and its
international creditors agreed on the terms of a third bailout. The
deal could provide up to EUR86 billion in financing if it is
ratified by other eurozone governments.
The Athex Composite index closed 2.1% higher. Greek stocks saw
some of the largest gains in Europe, with National Bank of Greece
SA up 5.0%.
In currency markets, the euro was up 0.4% against the U.S.
dollar at $1.1063. The Japanese yen fell 0.3% against the
dollar.
Write to Christopher Whittall at christopher.whittall@wsj.com
and Tommy Stubbington at tommy.stubbington@wsj.com