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Global market turmoil in six charts Global market turmoil in six charts
(about 2 hours later)
World stock markets have suffered their worst week of the year so far as concerns about the health of the Chinese economy rattle investors across the globe.World stock markets have suffered their worst week of the year so far as concerns about the health of the Chinese economy rattle investors across the globe.
Amid growing concern over a potential hard landing for China and the prospect of a US rate rise, there have been sharp moves on commodity and currency markets as well.Amid growing concern over a potential hard landing for China and the prospect of a US rate rise, there have been sharp moves on commodity and currency markets as well.
“Markets finished the week much the way they started; worried about the impact of a sell-off in emerging market stocks and currencies. No market has been spared this week since slowing global growth has a global impact,” commented Jasper Lawler, analyst at CMC Markets UK.“Markets finished the week much the way they started; worried about the impact of a sell-off in emerging market stocks and currencies. No market has been spared this week since slowing global growth has a global impact,” commented Jasper Lawler, analyst at CMC Markets UK.
Here are the big six factor affecting marketss. Here are the big six factor affecting markets.
1. China’s stock market rout1. China’s stock market rout
Chinese shares have tumbled in recent weeks against the backdrop of a slowdown in the world’s second-largest economy. Buoyed by an army of individual investors, many of whom borrowed heavily to speculate on shares, the Shanghai stock market had surged more than 150% in 12 months before heavy selling started in June.Chinese shares have tumbled in recent weeks against the backdrop of a slowdown in the world’s second-largest economy. Buoyed by an army of individual investors, many of whom borrowed heavily to speculate on shares, the Shanghai stock market had surged more than 150% in 12 months before heavy selling started in June.
Despite emergency measures from Beijing officials designed to stabilise the markets and restore confidence in the economy, this week alone the Shanghai Composite Index fell more than 11%.Despite emergency measures from Beijing officials designed to stabilise the markets and restore confidence in the economy, this week alone the Shanghai Composite Index fell more than 11%.
2. The falling yuan2. The falling yuan
China’s surprise currency devaluation earlier this month only served to heighten fears about the state of its economy and the potential impact on the rest of the world.China’s surprise currency devaluation earlier this month only served to heighten fears about the state of its economy and the potential impact on the rest of the world.
In the biggest one-off devaluation of its currency in two decades the country’s central bank allowed the yuan, also called the renminbi, to weaken by nearly 2%. Economists note that the fall has been significant enough to dent investor confidence around the world but at the same time probably too small to do much for Chinese exports.In the biggest one-off devaluation of its currency in two decades the country’s central bank allowed the yuan, also called the renminbi, to weaken by nearly 2%. Economists note that the fall has been significant enough to dent investor confidence around the world but at the same time probably too small to do much for Chinese exports.
3. Tumbling oil prices3. Tumbling oil prices
The apparent slowdown in China, the world’s biggest energy consumer, has combined with a pick-up in crude production to knock oil prices down sharply. The price of Brent crude has more than halved since a peak of $115 per barrel last summer. The news this weak of a sharp drop in Chinese manufacturing fanned fears that demand for oil has further to fall and at under $46 per barrel now, Brent crude is near a six-year low reached earlier this year. US crude prices have fallen for eight weeks running, the most protracted decline since 1986.The apparent slowdown in China, the world’s biggest energy consumer, has combined with a pick-up in crude production to knock oil prices down sharply. The price of Brent crude has more than halved since a peak of $115 per barrel last summer. The news this weak of a sharp drop in Chinese manufacturing fanned fears that demand for oil has further to fall and at under $46 per barrel now, Brent crude is near a six-year low reached earlier this year. US crude prices have fallen for eight weeks running, the most protracted decline since 1986.
4. An interest rate shock waiting to happen?4. An interest rate shock waiting to happen?
Monetary policy has been ultra-loose in advanced economies for years now. The global financial crisis prompted record low interest rates and saw central banks pump floods of electronic money into gridlocked financial markets, via quantitative easing (QE) programmes.Monetary policy has been ultra-loose in advanced economies for years now. The global financial crisis prompted record low interest rates and saw central banks pump floods of electronic money into gridlocked financial markets, via quantitative easing (QE) programmes.
Now investors are asking when the policymakers will tighten the screws. In the US, the main policy rate has been held at near-zero since the 2008 crisis. Recent signals from the US Federal Reserve suggest the central bank is gearing up for the first interest rate increase in nearly a decade as soon as next month. The prospect of higher borrowing costs and a strengthening dollar have unsettled financial markets and prompted big moves of capital.Now investors are asking when the policymakers will tighten the screws. In the US, the main policy rate has been held at near-zero since the 2008 crisis. Recent signals from the US Federal Reserve suggest the central bank is gearing up for the first interest rate increase in nearly a decade as soon as next month. The prospect of higher borrowing costs and a strengthening dollar have unsettled financial markets and prompted big moves of capital.
5. Emerging markets rattled5. Emerging markets rattled
During the years of cheap money on the back of vast QE programmes in advanced economies, there were large flows of funds to developing economies. With interest rates low at home, investors from advanced economies parked their money in the higher-yielding currencies of the emerging economies.During the years of cheap money on the back of vast QE programmes in advanced economies, there were large flows of funds to developing economies. With interest rates low at home, investors from advanced economies parked their money in the higher-yielding currencies of the emerging economies.
But now expectations of a Federal Reserve rate hike in coming months has prompted money to pour back out of emerging markets. Such markets suffered an outflow of almost $1tn of funds in the past year. On top of that, China’s slowdown and stock market woes are rippling out to knock confidence in other emerging markets. Malaysia’s ringgit currency has been one of the big losers, falling to a fresh 17-year low on Friday. The falls in emerging market currencies, which also include the Indonesian rupiah and Thai baht, make it harder for governments and businesses to make payments in dollars. But now expectations of a Federal Reserve rate hike in coming months have prompted money to pour back out of emerging markets. Such markets suffered an outflow of almost $1tn of funds in the past year. On top of that, China’s slowdown and stock market woes are rippling out to knock confidence in other emerging markets. Malaysia’s ringgit currency has been one of the big losers, falling to a fresh 17-year low on Friday. The falls in emerging market currencies, which also include the Indonesian rupiah and Thai baht, make it harder for governments and businesses to make payments in dollars.
6. Gold in demand6. Gold in demand
Gold prices have been choppy in recent weeks, as two big market forces play off against each other. Gold does not pay any kind of interest or dividend to its holders and so money has flowed out of the precious metal on the prospect of higher US interest rates. It hit a five-year low in July.Gold prices have been choppy in recent weeks, as two big market forces play off against each other. Gold does not pay any kind of interest or dividend to its holders and so money has flowed out of the precious metal on the prospect of higher US interest rates. It hit a five-year low in July.
But at the same time gold continues to be seen as a safe investment in times of trouble and the latest market jitters and fears of a global slowdown have lifted the price. Against the backdrop of tumbling stocks and a sliding dollar, gold touched a six-week high on Friday.But at the same time gold continues to be seen as a safe investment in times of trouble and the latest market jitters and fears of a global slowdown have lifted the price. Against the backdrop of tumbling stocks and a sliding dollar, gold touched a six-week high on Friday.