US stocks sink as fears of a China-led global slowdown intensifies

For six straight days, as of August 25, 2015 US stocks have sunk as fears of a China-led global slowdown intensified. The S&P 500 and Dow Jones Industrial Average, continue to drop, with the benchmark index suffering its biggest two-day move since the financial crisis in 2008.

According to reports, all ten of the S&P 500’s main sectors have fallen since the index began its decline last Tuesday, August 18, 2015 led by a 14.5 per cent slump in the energy industry. More than  10 billion shares  have traded hands on the New York Stock Exchange, Nasdaq and NYSE MKT for each of the last three trading days.

August 25th, which saw the S&P 500 advance as much as 2.9 per cent, had alleviated concerns that the recent sell-off had been overdone. Investors hoped they could step in to buy shares they now perceived as cheap. China’s decision to ease monetary policy further boosted sentiment at the start of the day. “It just looks like the rally ran out of air,” said Brian Jacobsen, a strategist at Wells Fargo Funds Management. “People played the bounce and then just wanted to take their money out.”

Turmoil in Chinese financial markets, which has since spilled over across the emerging and developed world, has shaken the ruling Communist party and left prime minister  Li Keqiang fighting  for his political future, analysts and people familiar with the internal workings of the party say.

August 24, which some have already dubbed “Black Monday,” was not a kind day to global equity markets. The rout began with a massive sell-off in China, where the benchmark Shanghai Composite Index plunged 8.49 percent in just one day. Those losses echoed in major indices worldwide, including those of Japan (down 4.61 percent), Germany (down 4.70 percent), and the United States (where the Dow Jones Industrial Average fell 3.58 percent).

US  stock markets whipsawed  on that day, clawing back some of their early losses but nonetheless finishing sharply lower as a tumultuous session in China wrangled global financial markets on a day now known as ‘Black Monday’. The benchmark S&P 500 finished the day 3.9 per cent lower at 1,893.21, suffering a  technical correction , while the blue-chip Dow Jones Industrial Average declined 3.6 per cent to 15,871.35. Earlier in the day, the Dow slid more than 1,000 points as investors closed positions and rushed into haven assets.

The US sell-off followed painful sessions in both Europe and Asia, with French, German and  UK bourses  all sliding. “The mood is one of apprehension and worry,” said Jim Kochan, a strategist at Wells Fargo Fund Management. “When prices are this volatile, it’s natural for investors to recall the financial crisis, and then they become fearful.” Fed’s cloudy view The China-induced equity slump has added an  extra challenge  to policymakers at the US central bank who are readying to raise interest rates for the first time since the financial crisis. While policymakers with the Federal Reserve have emphasised the weight placed on the US economy, labour market and inflation expectations, traders have been rapidly reducing their expectations that the central bank will  pull the trigger  in September.

Oil slides to six year low Oil slipped more than 6 per cent to levels last seen during the financial crisis and a broad index of commodity prices slid to the lowest point of this century as economic doubts gathered over China, the engine room of demand growth over the past decade.  West Texas Intermediate , the US standard, slid to $38.24 a barrel while Brent declined to $42.47 a barrel. (FT)

Stock market jitters spread throughout Asia and the rest of the world, and Wall Street sustained a major plunge, after Chinese stocks recorded their biggest slump in eight years during what China’s state media dubbed “Black Monday.”

The collapse in Chinese stocks was fueled by mounting concerns about an economic slowdown here, but it has fed into a wider sell-off in emerging markets. Asian shares hit a three-year low Monday, and the nervousness led to a  rocky day on Wall Street after last week’s sharp falls there.

“A lot of questions are being asked by investors,” said Chris Weston, chief markets strategist at IG in Melbourne. “This is a confidence game, and when you don’t have confidence, you press the sell button.”

Shanghai’s main share index closed down 8.49 percent, but trading in hundreds of shares was suspended after they lost 10 percent.

The Shanghai Composite Index has fallen by nearly 40 percent since June, after rising more than 140 percent last year. Tokyo’s Nikkei-225 index recorded its biggest drop in more than two years, falling 4.6 percent to a six-month low, while the MSCI index of Asia-Pacific shares outside Japan sank 5.1 percent to a three-year low.

The pummeling investors delivered to Chinese stocks surely had global knock-on effects, yet it is not the sole cause of the Aug. 24 swoon. Bill Bishop, who edits the influential China focused newsletter  Sinocism , told Foreign Policy that China’s stock market “has historically been irrelevant both to the domestic Chinese economy and the global economy,” but that China’s government “has tarnished its reputation with its  bungled response , and so now even those foreign investors who had some confidence in the ability of Beijing bureaucrats to navigate their very difficult economic problems are now wondering if they are competent.” That may have provided “the spark for the broader global sell-off,” though Bishop also pointed to anxiety about the Federal Reserve possibly raising interest rates and an “extended rally” in U.S. stocks that made them a more expensive investment.

Meanwhile, Damien Ma, a fellow at the Paulson Institute, said that “it’s premature to conclude that this is some kind of major crisis” for the Chinese economy. “The key,” he told FP, “is how the government will now manage the real economy so that it stabilizes rather than continuing to search for a bottom” and “whether any of this has actually moved the needle on the elite consensus in pushing through reforms” on the economic front

The worldwide losses have had their own impact on Indian stock market too. In the worst daily falls in over six years, the benchmark stock market index Sensex in India on August 24th crashed by 1,624.51 points, or about 5.9%, amid a rout of global markets following a selloff in China. The intra-day fall was even larger at 1,741.35 points – the third biggest and highest in over seven years – as Finance Minister Arun Jaitley and RBI Governor Raghuram Rajan, among others, sought to allay fears and said fundamentals of Indian markets remain strong.

The BSE’s 30-share index closed the day at 25,741.56 points as stocks across the board fell. The total investor wealth, measured in terms of cumulative market value of all listed stocks, plunged by nearly $106 billion. The broader 50-share NSE Nifty too witnessed heavy selling pressure and plunged by 490.95 points, or 5.9% to 7,809.00. The Indian rupee also plunged to a nearly two-year low to trade at about 66.65 against the U.S. dollar.

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