Wall Street Down As Chinese Markets Plummet

Wall Street Down As Chinese Markets Plummet

Investors are reeling this morning from a huge sell-off overnight in Asian equities, particularly in China where the Hang-Seng fell more than 3% and the Shanghai  share index plunged an incredible 8%, the biggest one-day fall since early 2007.  



Wall Street Down As Chinese Markets Plummet
Wall Street Down As Chinese Markets Plummet

The decline comes despite a Beijing-led effort to shore up the stock market last month, though some would argue this snap back may be a consequence of such an artificial move to prop up prices.

Naturally there has been a fairly substantial knock-on effect in Europe, where the German DAX and French CAC 40 both fell around 2%, and early trading was also negative in the US. Shortly after the opening bell in New York, the Dow Jones was down 126 points or 0.72% at 17442, while the S&P 500 slid 0.63% to 2066.6.

There is likely to be some added caution in the market in the early part of the week ahead of the mid-week FOMC announcement. The Fed begins its meeting on Tuesday morning, with an announcement on monetary policy set for its usual Wednesday afternoon slot. No change is expected, but with no meeting in August, it would seem likely that if the September FOMC meeting is a candidate for a rate hike then there will have to been some meaningful change in the forward guidance in this Wednesday’s statement.

Manufacturing has been an area of the US economy that has failed to impress with its performance so far this year. While Friday’s flash manufacturing PMI showed activity holding broadly steady in July from June and there was some encouragement to be taken from this morning’s durable goods report, there is still no strong evidence to suggest we are seeing any significant gain in momentum for the sector after a disappointing first half to the year.

Durable goods orders grew 3.4% in June, which was slightly ahead of the consensus estimate, though May’s orders were downwardly-revised to -2.1% from the originally-reported -1.8%. This report is notoriously volatile, particularly orders for transportation goods (June’s result were lifted by a huge upswing in orders for civilian aircraft), which is why economists often choose to concentrate more on the level of orders excluding transportation. Ex-transportation, orders rose 0.8%, which is a solid result. One of the issues that has been negatively affecting manufacturing is the slide in exports that has accompanied the extended up-trend in the strength of the US dollar and June’s gain will boost hopes that the constraining effect of the strong dollar may be starting to ebb, though it would be wise to not read too much into such a swingy indicator.

 

We will have access to another manufacturing gauge later on Monday morning with the release of the Dallas Fed’s manufacturing survey for July.


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