Still, markets around the world also saw strong sell offs over the last two days. That is its worst weekly slump since 2011, and leaves it close to what Wall Street calls a “correction“, or a fall of 10 percent from a recent high.
Brazil’s real has fallen 9 percent in against the U.S. dollar in the past month and the currencies of Colombia, Chile and Vietnam have all dropped as well.
“You’re definitely witnessing a ideal storm in terms of China timing, people on vacation that affects liquidity, and you’ve got a lot of questions on the Fed and people are obviously focused on oil“, said Andrew Frankel, copresident of Stuart Frankel & Co in New York. Abroad, last week’s surprise devaluation of China’s yuan has sent shockwaves through other emerging countries that might face tougher competition from lower-priced Chinese exports. The S&P 500 slid 64.84 points, or 3.19 per cent, to 1,970.89 and the Nasdaq Composite lost 171.45 points, or 3.52 per cent, to 4,706.04.
On Friday, the Dow endured its fourth consecutive day of declines, losing 530.94 points, or 3.1%, to finish at 16459.75.
“Concerns about slowing growth in China are certainly valid”, said Jeremy Zirin, head of investment strategy at UBS Wealth Management. “But there doesn’t seem to be any signal that the weakness overseas is slipping into the U.S. economy“.
“You kind of have a mini-correction”, said John Canally, an economist at LPL Financial.
Investors are always keeping a close eye on the Federal Reserve, trying to figure out when the central bank will raise interest rates. This has created fears the Fed may decide to act despite the global jitters, which could have a psychological effect on investors. “They are just waiting and they are going to step back in next week”. “Asian markets are a sea of red”, said Angus Nicholson of IG Markets in a report. It also banned selling by major shareholders and told state-owned companies to buy stocks. Raising rates as early as next month, as some investors have expected will happen, could further unnerve investors, dampen economic activity and speed the flow of dollars out of developing countries. “To the extent that global financial conditions are tightening, it is something that feeds into your forecast”.
Nonetheless, the overdue correction might find yourself resetting markets in ways in which finally profit most buyers, analysts stated.
The rout started in Asia and quickly spread to Europe, battering major markets in Germany and France.
The pan-European FTSEurofirst 300 index fell 1.8% to 1,450.18 points, its lowest level since January and on course for its biggest weekly fall of the year.
The Shanghai composite index on mainland China dropped over 4%. December gold finished $5.80 higher at $1.153.20 per ounce. Copper lost 2 cents to $2.30 a pound. The oil industry was among the biggest losers as stocks dropped and oil prices briefly dipped below $40 a barrel – bad news for the America’s first tar sands mine. The sharp stock losses in China raised concerns over whether the Chinese government’s rescue efforts are capable of restoring market confidence.
Thomas Lee, managing partner at Fundstrat Global Advisors in New York, said it was hard to say what was behind the selloff.
This article includes information from Bloomberg News.