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Stocks Off Sharply as Market Upheaval Grows Stocks Pare Losses but Market Upheaval Continues
(35 minutes later)
■ Stock markets in the United States plunged in early trading. ■ Stock markets in the United States plunged in early trading but recovered much of their losses by midday.
■ In China, the benchmark Shanghai composite index erased all of the gains it had made this year.■ In China, the benchmark Shanghai composite index erased all of the gains it had made this year.
■ In Europe, stocks fell sharply, with the main indexes down by 4 percent or more in the early afternoon. ■ In Europe, stocks fell sharply, with the main indexes closing down 5 percent or more.
■ The market drops have erased nearly $10 trillion from the global stock market since a peak on June 3. ■ The drops have erased nearly $10 trillion from the global stock market since a peak on June 3.
■ The American and international oil benchmarks have fallen to their lowest point in more than six years.■ The American and international oil benchmarks have fallen to their lowest point in more than six years.
Stocks in the United States tumbled on Monday morning as another sell-off that started in China roiled markets around the world. Stocks in the United States tumbled on Monday morning as another sell-off that started in China led to a cascading effect around the world.
Immediately after the opening bell in New York, the Dow Jones industrial average dropped more than 1,000 points, or more than 5 percent — one of the most precipitous such plunges in recent years. Within an hour, though, American stocks had made up much of their earlier losses and the Dow was down about 2 percent. Immediately after the opening bell in New York, the Dow Jones industrial average dropped more than 1,000 points, or more than 5 percent — one of the most precipitous such plunges in recent years. The indexes pared back much of their early losses, but at midday the Dow was still down about 1.2 percent after hitting lows reached on Friday. Trading remained volatile throughout the day.
Investors’ concerns over China’s economic slowdown and a souring view of emerging economies have rattled financial markets around the world in recent days, and showed no signs of letting up. Investors’ concerns over China’s economic slowdown and a souring view of emerging economies have rattled financial markets around the world in recent days, and showed no signs of letting up. The Dow is now down 9 percent since the start of the year while the broader Standard & Poor’s 500-stock index is off 6.4 percent since Jan. 1.
“There was a huge amount of negative sentiment built in this morning,” said Dan Greenhaus, the chief global strategist at BTIG.“There was a huge amount of negative sentiment built in this morning,” said Dan Greenhaus, the chief global strategist at BTIG.
Mr. Greenhaus said many investors ended last week hoping that the Chinese government would step in over the weekend to announce some steps to support the markets, but nothing significant was announced, contributing to the pessimism on Monday morning.Mr. Greenhaus said many investors ended last week hoping that the Chinese government would step in over the weekend to announce some steps to support the markets, but nothing significant was announced, contributing to the pessimism on Monday morning.
In early trading in the United States, the benchmark Standard & Poor’s 500-stock index was initially down more than 5 percent and the Nasdaq fell more than 8 percent. But about an hour into trading, the S.&P. was down about 2 percent and the Nasdaq, 2.4 percent. The negative sentiment led to the big market drops in early trading Monday morning, with the S.&P. 500 initially down over 5 percent and the Nasdaq down more than 8 percent. The bounce back from those early lows suggested that at least some investors are becoming convinced that the panic has gone too far.
In China, the benchmark Shanghai composite index closed 8.5 percent lower on Monday, erasing all of the gains it had made in an extraordinary run-up this year. And in Europe, stocks fell sharply, with several of the main indexes down by 6 percent or more in late-afternoon trading. Ryan Larson, the head stock trader at RBC Global Asset Management, said that after the initial market declines clients were cancelling their sell orders and putting in requests to buy stocks.
The meltdown, which has erased nearly $10 trillion from the global stock market since a peak on June 3, poses a challenge to the Federal Reserve in the United States. The central bank’s chairwoman, Janet L. Yellen, and her colleagues on the Fed’s policy board have been warning investors for months that the central bank was moving toward the first increase in its main interest rate since it was cut to zero in December 2008. “People just realized, ‘This is a little stupid, and there are some great opportunities,’” Mr. Lason said.
Still, few investors were calling for an end to the volatility that has shaken markets in recent weeks.
At midday, the S.&P. was down 1.4 percent, while the Nasdaq was 0.6 percent lower. In Europe, stock declines were sharper, with the main indexes closing down about 5 percent.
The so-called fear index, the Vix, was up on Monday morning to levels last reached back in 2011 when Americans were worrying about a double-dip recession.
Investors flocked to the safe haven of Treasury bonds. The demand for bonds pushed the yield on the benchmark 10-year Treasury note briefly to 1.90 percent before it recovered back over the psychologically significant 2 percent mark.
In China, the benchmark Shanghai composite index closed 8.5 percent lower on Monday, erasing all of the gains it had made in an extraordinary run-up this year. And in Europe, stocks fell sharply, with several of the main indexes were down by 6 percent or more in late-afternoon trading.
The broad-based sell-off in stocks, which has erased nearly $10 trillion from the global stock market since a peak on June 3, poses a challenge to the Federal Reserve in the United States. The central bank’s chairwoman, Janet L. Yellen, and her colleagues on the Fed’s policy board have been warning investors for months that the central bank was moving toward the first increase in its main interest rate since it was cut to zero in December 2008.
Many analysts have said that a correction to stock market valuations was overdue after a long bull market. And it is too early to say how the financial market slump will affect the underlying global economy where goods and services are actually produced and consumed.Many analysts have said that a correction to stock market valuations was overdue after a long bull market. And it is too early to say how the financial market slump will affect the underlying global economy where goods and services are actually produced and consumed.
Many of the world’s central bankers will have a chance later this week to compare notes and discuss whether new policy steps are needed when they gather, along with finance ministers and academics, in Jackson Hole, Wyo., for the Federal Reserve Bank of Kansas City’s annual conference.Many of the world’s central bankers will have a chance later this week to compare notes and discuss whether new policy steps are needed when they gather, along with finance ministers and academics, in Jackson Hole, Wyo., for the Federal Reserve Bank of Kansas City’s annual conference.
Commodities also slumped on Monday. Futures for Brent and United States crude oil fell to their lowest point in more than six years on concerns about possible weaker demand from Asia amid a general oversupply. Contracts for the European benchmark Brent crude fell 3.7 percent to $43.80 — its first time below $45 since March 2009. Commodities also slumped on Monday. Futures for Brent and United States crude oil fell to their lowest point in more than six years on concerns about possible weaker demand from Asia amid a general oversupply. Crude oil prices in the United States were down 4.2 percent to under $39 a barrel.
The selling in China has accelerated despite extraordinary government intervention in the last two months aimed at propping up share prices. As the slide on Monday highlighted, those efforts have not been a success and the damage has been felt far beyond the Chinese market. The gloom was shared across Asia. In Japan, the Nikkei 225 stock average closed 4.6 percent lower, while Australia’s main index fell 4.1 percent.The selling in China has accelerated despite extraordinary government intervention in the last two months aimed at propping up share prices. As the slide on Monday highlighted, those efforts have not been a success and the damage has been felt far beyond the Chinese market. The gloom was shared across Asia. In Japan, the Nikkei 225 stock average closed 4.6 percent lower, while Australia’s main index fell 4.1 percent.
In Hong Kong, where the Hang Seng Index closed 5.2 percent lower, the mood at brokerage firms was grim.In Hong Kong, where the Hang Seng Index closed 5.2 percent lower, the mood at brokerage firms was grim.
“People who had wanted to bottom feed by buying earlier this morning are all losing money,” said Andy Wong, a Hong Kong stockbroker. “The market trend does not look good, it is all bad news, globally. All the markets are going down, globally; the Chinese stock markets are in free fall today.”“People who had wanted to bottom feed by buying earlier this morning are all losing money,” said Andy Wong, a Hong Kong stockbroker. “The market trend does not look good, it is all bad news, globally. All the markets are going down, globally; the Chinese stock markets are in free fall today.”
Leung Chung, a 62-year-old retiree and day trader in a T-shirt and with a toothpick in his mouth, looked sourly at the monitors at his local brokerage firm in late morning. “I just purchased some stocks earlier this morning, but have already lost money,” Mr. Leung said. “I am not too concerned as I only bought stocks with solid financial strength.”Leung Chung, a 62-year-old retiree and day trader in a T-shirt and with a toothpick in his mouth, looked sourly at the monitors at his local brokerage firm in late morning. “I just purchased some stocks earlier this morning, but have already lost money,” Mr. Leung said. “I am not too concerned as I only bought stocks with solid financial strength.”
The dollar rose against most Asian currencies, with the exception of the yen, which is considered a regional haven. The dollar fell 1.5 percent to 120.18 yen.The dollar rose against most Asian currencies, with the exception of the yen, which is considered a regional haven. The dollar fell 1.5 percent to 120.18 yen.
The euro gained 0.9 percent against the dollar, trading at $1.1491.The euro gained 0.9 percent against the dollar, trading at $1.1491.
Lee Hardman, a currency analyst at Bank of Tokyo-Mitsubishi UFJ in London, said in a research note that the rising euro and yen were “creating a policy headache for the European Central Bank and Bank of Japan,” as well as for the Fed.Lee Hardman, a currency analyst at Bank of Tokyo-Mitsubishi UFJ in London, said in a research note that the rising euro and yen were “creating a policy headache for the European Central Bank and Bank of Japan,” as well as for the Fed.
Stronger currencies, he said, would make it harder for central banks to fight deflationary pressures. He noted that long-term forecasts for the eurozone showed inflation beginning to return to the levels that existed before the European Central Bank began its bond-buying program this year.Stronger currencies, he said, would make it harder for central banks to fight deflationary pressures. He noted that long-term forecasts for the eurozone showed inflation beginning to return to the levels that existed before the European Central Bank began its bond-buying program this year.
The rout has deepened globally as uncertainties have increased over the health of China’s economy, previously a major engine of global growth. The surprise devaluation on Aug. 11 of China’s currency, the renminbi, was the biggest drop since the country’s modern exchange rate system was established in 1994.
The move raised concerns that China’s slowdown was worse than it had previously appeared to be, a development that would have far-reaching effects, given China’s increasing economic importance to Asia and the rest of the world.
“Asian financial markets are seeing an intensification of selling pressure in the aftermath” of China’s devaluation, Claudio Piron, a strategist in Singapore for Bank of America Merrill Lynch, wrote on Monday in a research report. “The market’s confidence in China’s ability to deliver growth remains in question.”
One big question is whether China’s stock market plunge will make the Chinese economy, the world’s second-largest after that of the United States, even weaker. China’s exports were down 8 percent in July compared with a year earlier, while auto sales were down 7 percent.One big question is whether China’s stock market plunge will make the Chinese economy, the world’s second-largest after that of the United States, even weaker. China’s exports were down 8 percent in July compared with a year earlier, while auto sales were down 7 percent.
But Xu Sitao, the chief China economist in the Beijing office of Deloitte, said in a speech in Hong Kong that the effect on the economy could be muted because equities represent only 7 percent of the overall wealth of urban Chinese households, which continue to rely very heavily on real estate in their holdings.But Xu Sitao, the chief China economist in the Beijing office of Deloitte, said in a speech in Hong Kong that the effect on the economy could be muted because equities represent only 7 percent of the overall wealth of urban Chinese households, which continue to rely very heavily on real estate in their holdings.
“The stock market really has a very, very insignificant impact on the Chinese economy,” he said.“The stock market really has a very, very insignificant impact on the Chinese economy,” he said.
Instead, China’s slowdown is being driven by more traditional industry. On Friday, new data showed China’s manufacturing sector contracted in the first three weeks of August at the fastest pace since the depths of the financial crisis.
It was the latest sign of continued deterioration in industrial activity across China, suggesting that the government’s efforts to support growth — which include several interest rate cuts and directing billions of dollars in new loans to infrastructure projects — have fallen short.
At the same time, state intervention in the stock markets appears to have backfired. China’s stock markets had enjoyed a tremendous rally, more than doubling in the year to mid-June. But they have plunged since then, despite the government ordering state agencies to buy shares and barring large shareholders from selling down their stakes.
Despite this, the market continued to slump. On Monday, the Shanghai index fell to its lowest level this year; it traded as low as 3,191.88 points, a drop of 9 percent from the close on Friday and nearly 40 percent below its peak in June. Mainland shares are only allowed to rise or fall by 10 percent per day before they are suspended from trading. Shares in more than 800 of the nearly 1,100 companies in the Shanghai index fell by the limit.Despite this, the market continued to slump. On Monday, the Shanghai index fell to its lowest level this year; it traded as low as 3,191.88 points, a drop of 9 percent from the close on Friday and nearly 40 percent below its peak in June. Mainland shares are only allowed to rise or fall by 10 percent per day before they are suspended from trading. Shares in more than 800 of the nearly 1,100 companies in the Shanghai index fell by the limit.
The plunge in Shanghai came despite an announcement by China’s government on Sunday that the country’s pension funds had been approved for the first time to invest in stocks.The plunge in Shanghai came despite an announcement by China’s government on Sunday that the country’s pension funds had been approved for the first time to invest in stocks.
Pension funds can invest as much as 30 percent of their holdings in the stock market, according to the statement by the State Council, China’s cabinet. The main state-run pension fund manages about 3.5 trillion renminbi, or about $550 billion, in retirement savings of ordinary citizens.Pension funds can invest as much as 30 percent of their holdings in the stock market, according to the statement by the State Council, China’s cabinet. The main state-run pension fund manages about 3.5 trillion renminbi, or about $550 billion, in retirement savings of ordinary citizens.
Many economists expect the central bank, the People’s Bank of China, to cut the ratio of deposits that banks are required to keep on reserve in a bid to help stem outflows of capital, which rose to a record of $70 billion in July and probably accelerated in the weeks since the renminbi was devalued.Many economists expect the central bank, the People’s Bank of China, to cut the ratio of deposits that banks are required to keep on reserve in a bid to help stem outflows of capital, which rose to a record of $70 billion in July and probably accelerated in the weeks since the renminbi was devalued.
Reducing this so-called reserve requirement ratio, or R.R.R., would help bring down rates in China’s money markets, which have been climbing in recent months, despite the central bank’s recent attempts to add more liquidity.
“Economic activities remain weak and the likelihood of an imminent R.R.R. cut has increased,” Li-Gang Liu, the chief economist for China at the Australia and New Zealand Banking Group, wrote on Monday in a research report. “In the near future, we expect the People’s Bank of China to continue managing market liquidity conditions.”