Last week was a tough period for investors, with sharp stock market falls seen on both Thursday and Friday.
By Peter Martin
Monday, August 24, 2015
Anyone looking for a bounce to start the new week will have been left deeply disappointed, with trading continuing in very much the same vein on Monday. The carnage began overnight in the Asian trading session, with China’s Shanghai Composite index suffered an 8.5% slide, its biggest one-day percentage fall since 2007, as worries over the state of the Chinese economy intensified, and shockwaves from this plunge are being felt not just in other Asian markets but also in European and on Wall Street. The Japanese Nikkei fell 4.6%, while the German DAXC and the UK’s FTSE 100 both lost around 4.0%.
Stock prices sunk drastically at the opening on Wall Street, while the NYSE invoked its rarely-used Rule 48, in order to speed up the opening and help smooth out volatility. One of the effects of the rule is to free market makers from the requirement to make pre-opening price indications. Shortly after the opening bell, the Dow Jones was down 918 points or 5.6%.
Beijing had responded to declines earlier in the summer by implementing measures designed to support prices, but an absence of similar action from the Chinese authorities following last week’s major decline has led to the current free-fall — and the declines have not been restricted to the stock market. Commodity prices, particularly oil, have also lurched to lower levels, as risk appetite dwindles. US crude oil futures slid around 4% in early trading, taking the price down to $38.90, some 17% cheaper than it began the month. Despite oil prices trading at multi-year lows, there has been no response so far from major oil producers to rein in the global supply. Exacerbating the situation is a belief that Iranian oil may soon be swelling supplies and pressuring prices further. The Iranian Oil Minister Bijan Zanganeh said yesterday that ‘We will be raising our oil production at any cost and we have no other alternative,’ adding that ‘If Iran's oil production hike is not done promptly, we will be losing our market share permanently.’
Domestic macroeconomic indicators continue to show signs of solidity despite the maelstrom going on in the stock market. The Chicago Fed National Activity Index bounced to 0.34 in July, which would normally be considered an encouraging signal, beating expectations for a reading of 0.20, and up from June’s downwardly-revised level of -0.07 (the original level was +0.08). Most components point to expansion, especially production, though the personal consumption & housing component was negative (even so, it showed a big improvement at -0.06 compared to June’s -10.00).
We have some important economic indicators out this week, not least of which is the Conference Board’s Consumer Confidence index for August which is out on Tuesday, but for the time being the market is being dominated by fear more than anything else.
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