Overseas stock markets’ losses just as bad, if not worse, with some indexes in China and the United Kingdom stock market all now in correction.
US share prices have plunged more than three per cent as China’s economic problems drove a major sell-off on Wall Street for a second day.
The dollar fell broadly, dropping to a two-month low against the euro, as the Chinese data eroded expectations the Federal Reserve will raise US interest rates next month.
A searing six-year rally in U.S. stocks had advanced into the summer months, shrugging off challenges such as the dispute over Greece’s debt. Investors who once flocked to emerging-markets like Brazil and Russian Federation now shun them.
At 12.30pm ET (16.30 GMT) the Dow Jones industrial average was down 294.5 points, or 1.73 per cent, at 16,696.19. The S&P 500 dropped about 3.2%. The selling was widespread, with all 10 industries of the Standard and Poor’s 500 down, and gathered strength in the afternoon. Economists expect the country’s GDP to contract by more than 2% this year.
The declines this week have been broad.
Following the Chinese manufacturing report, Japanese stocks gave up 3 percent, while European stock markets tumbled, with the pan-European Stoxx 600 trading 1.7 percent lower.
Its surprise devaluation also triggered other governments to drive their currencies lower, roiling financial markets and spreading fears of a currency war. “You typically tend to have a follow-through after big days. We don’t see it. We’re really optimistic about the future”.
The S&P 500 posted no new 52-week highs for the first time since August 8, 2011, after S&P downgraded the U.S. credit rating, while there were 75 new lows; the Nasdaq recorded 13 new highs and 276 new lows. Japan’s Nikkei 225 lost 3%, South Korea’s Kospi shed 2% and Hong Kong’s Hang Seng fell 1.5%. In Britain, the FTSE 100 index was down 1.5 percent.
“China has been on a mission to keep up the illusion of a gradual slowdown, but dealers aren’t buying it anymore”, market analyst David Madden told the AP.
After heavy selling in previous sessions thanks to worries about the persisting global supply glut in the oil patch, U.S. crude took a breather on Thursday. For the first time since 2009 oil prices dropped below $40. Crude oil has now been in decline for eight consecutive weeks, the longest streak since 1986. The private Caixin/Markit manufacturing purchasing managers’ index – where a figure below 50 indicates contraction – declined to 47.1 from 47.8 in July.
As if China wasn’t worrying investors enough, the odds of a Fed rate hike in September seems to have lowered.
But a delay in lifting rates may bring little comfort to investors if slowing global growth is underpinning the Fed’s caution.
Patrick O’Hare of Briefing.com said that underpinning the selloff is investors’ losing faith in the ability of central bankers from Beijing to Washington to use monetary policy to stimulate growth. “It’s still an open question on whether they would move in September or not”.
Randy Frederick of Charles Schwab cautions that many of these high performing stocks that are now suffering went up way more than the overall stock market did this year.
“I think it’s all related to China”, he said.