[LONDON] World stock markets tumbled towards their worst week of the year on Friday and commodities got another kicking, as more alarming data from China sent investors scurrying to the safety of bonds and gold.
The data from China showed its giant manufacturing sector slowing at the fastest pace since the depths of the financial crisis in 2009, confirming the worries about its health that have preying on economist's minds for months.
Emerging market assets took another hammering and oil prices were on track for their longest losing streak since 1986, as fears of a China-led deceleration in global growth gripped sentiment.
Europe's bourses also started deep in red but did claw back some ground as traders breathed a sigh of relief as manufacturing and services data from the euro zone improved.
Britain's FTSE 100 was 0.7 per cent lower, Germany's DAX, which is having its worst month since 2011, was down just under 1 per cent and France's CAC 40 was off 0.8 per cent.
In the FX markets, the euro lost some of its overnight momentum having been pushed to a two-month high by those looking to get out of battered Asian currencies and China's proxies such as the Aussie and Hong Kong dollars. "Markets are pricing in the worst right now," said Herald Van Der Linde, head of Asian equity strategy at HSBC, referring to China.
The Caixin/Markit manufacturing index showed activity in China's factory sector shrinking at its fastest pace in almost 6 1/2 years in August as domestic and export demand dwindled.
That decline, coming on the heels of weaker-than-expected data in July, plus this month's turbulent changes in the yuan , and a brutal stock market plunge, heightened fears.
Shanghai stocks dropped 4 per cent to below the 200-day moving average for the first time since July 2014. That brought losses for the week to 11 per cent.
The Hang Seng index in Hong Kong was down 2.4 per cent for a weekly loss of 7.4 per cent. Japan's Nikkei declined 2.9 percent, 5.2 per cent on the week.
It all left MSCI emerging markets index at its weakest in four years and the 45-country "All World" index down more than 3.2 per cent on the week and heading for its worst of 2015 so far.
China's woes continued to roil commodities. Oil resumed its downward trend. US crude was at a more than 6-year low, on track for its eight straight weekly decline as it slipped 0.5 per cent to US$40.85. Brent nudged US$46 a barrel.
Oil's torrid run of weekly losses is its worst since 1986 when Opec ramped up production and sent it as low as US$10 a barrel.
Among currencies it was a similar story. The Australian dollar, considered a liquid proxy for China demand, slid to US$0.7285 at one point and was last trading at US$0.7304, down 0.5 percent for the day.
The Malaysian ringgit MYR hit a pre-peg 17-year low and South Korea's won fell again to take its losses to 1.8 per cent against the dollar this week. "The perfect storm that has enveloped EM local markets looks set to continue," analysts for Barclays said in a note.
The market ructions sent gold up to its highest level in more than a month.
US Treasury yields also slipped further. They were already feeling a downward pull after minutes from the Federal Reserve's July meeting offered little clue of a near-term rate hike, denting expectations of a tightening in September. "The US markets have held up well of late, being viewed as somewhat of a safe haven," wrote Chris Weston, chief market strategist at IG in Melbourne. "This view seems to have deteriorated somewhat with the S&P 500 closing below its multi-month trading range - a fate the credit markets and the U.S. yield curve have been screaming for some time." Lower Treasury yields in turn weighed on the dollar. The currency traded at 122.91 yen, the lowest in more than five weeks, after sinking from an overnight high of 124.16.