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Markets see their worst quarter in four years | |
(about 9 hours later) | |
Global equity markets signed off on their worst three months in four years on Wednesday. | |
Markets saw falls of between 7% and 15% over the three months with the Shanghai index falling furthest, down 25%. | |
Confidence in stocks has been hit by the crisis in Greece, the Chinese slowdown and the threat of higher interest rates. | |
However, most markets ended the month with a final flourish, some making gains for the single day of over 2%. | |
On Wednesday, the Dow Jones, the main American index, ended up about 1%. The London FTSE 100 bounced up 2.58% | |
But the numbers for the major markets from July to September make for sobering reading. | |
International Monetary Fund chief Christine Lagarde said: "On the economic front, there is... reason to be concerned. The prospect of rising interest rates in the United States and China's slowdown are contributing to uncertainty and higher market volatility," | International Monetary Fund chief Christine Lagarde said: "On the economic front, there is... reason to be concerned. The prospect of rising interest rates in the United States and China's slowdown are contributing to uncertainty and higher market volatility," |
Greek crisis | Greek crisis |
The markets started the quarter in the throes of the Greek crisis. Many investors were convinced there would be no bailout, economic chaos in Europe, and a Greek exit from the eurozone. | The markets started the quarter in the throes of the Greek crisis. Many investors were convinced there would be no bailout, economic chaos in Europe, and a Greek exit from the eurozone. |
That did not happen, but the European economic recovery has been anaemic at best. | That did not happen, but the European economic recovery has been anaemic at best. |
And a mere week after the Greek agreement, China had a Black Friday with the Shanghai market falling over 6%, sending markets round the world into a tailspin. | And a mere week after the Greek agreement, China had a Black Friday with the Shanghai market falling over 6%, sending markets round the world into a tailspin. |
Markets are often derided as wildly inaccurate economic barometers, but economists were agreed this indicated two very obvious facts: the Chinese stock markets were vastly over-valued, and the Chinese economy was slowing. | Markets are often derided as wildly inaccurate economic barometers, but economists were agreed this indicated two very obvious facts: the Chinese stock markets were vastly over-valued, and the Chinese economy was slowing. |
They were supported by a growing stream of weak economic figures coming out of China. | They were supported by a growing stream of weak economic figures coming out of China. |
That then had a knock on effect on global commodity prices, trade and shipping, and battered the shares in the big mining and energy companies and their support services. | That then had a knock on effect on global commodity prices, trade and shipping, and battered the shares in the big mining and energy companies and their support services. |
That hit the economies of commodity exporters like Australia, Brazil, Chile, and South Africa, weakening their currencies. | That hit the economies of commodity exporters like Australia, Brazil, Chile, and South Africa, weakening their currencies. |
Devaluation | Devaluation |
At the end of August China devalued its currency, the yuan, which caused another panic, as investors speculated the country was about to embark on a series of rapid devaluations to undercut its competitors. | At the end of August China devalued its currency, the yuan, which caused another panic, as investors speculated the country was about to embark on a series of rapid devaluations to undercut its competitors. |
With the benefit of hindsight the devaluation seems to have been what the Chinese government always claimed it was, part of a slew of reforms to allow market forces to dictate the value of its currency. | With the benefit of hindsight the devaluation seems to have been what the Chinese government always claimed it was, part of a slew of reforms to allow market forces to dictate the value of its currency. |
Ms Lagarde in her speech on Wednesday said: "China ... is in the midst of a fundamental and welcome transformation. It has launched deep structural reforms to lift incomes and living standards. These reforms will, by design, lead to a "new normal" of slower, safer, and more sustainable growth. " | Ms Lagarde in her speech on Wednesday said: "China ... is in the midst of a fundamental and welcome transformation. It has launched deep structural reforms to lift incomes and living standards. These reforms will, by design, lead to a "new normal" of slower, safer, and more sustainable growth. " |
But in the meantime the reforms are causing huge volatility in the world's markets. | But in the meantime the reforms are causing huge volatility in the world's markets. |
On top of all this the US - and the UK too - are considering putting up interest rates. | On top of all this the US - and the UK too - are considering putting up interest rates. |
US economy | US economy |
While the Chinese slowdown has worried American investors, they have fears of their own that US shares are simply overvalued. | While the Chinese slowdown has worried American investors, they have fears of their own that US shares are simply overvalued. |
Next week sees the start of the third quarter reporting season for America's big companies, which is likely to dictate the mood of the market through to the year end. | Next week sees the start of the third quarter reporting season for America's big companies, which is likely to dictate the mood of the market through to the year end. |
Meanwhile, the numbers on the US economy have been ambiguous. | Meanwhile, the numbers on the US economy have been ambiguous. |
Figures for August showed a sharp 3.2% fall in exports as the weakening global economy and the strong dollar made U.S. goods more expensive for foreign buyers. | Figures for August showed a sharp 3.2% fall in exports as the weakening global economy and the strong dollar made U.S. goods more expensive for foreign buyers. |
The August employment figures were disappointing, but not disastrous. | The August employment figures were disappointing, but not disastrous. |
US economic growth was revised upwards showing an annualised growth rate of 3.9%. But the numbers were for the second quarter - before the summer turmoil. | US economic growth was revised upwards showing an annualised growth rate of 3.9%. But the numbers were for the second quarter - before the summer turmoil. |
But some economists believe the economy is strong enough to withstand a rate rise. | But some economists believe the economy is strong enough to withstand a rate rise. |
Peter Morici, business professor at the University of Maryland, said: "Overall, a Fed interest rate increase won't harm growth and jobs creation, and the Fed is likely to begin gradually raising rates at its October or December policymaking meetings." | Peter Morici, business professor at the University of Maryland, said: "Overall, a Fed interest rate increase won't harm growth and jobs creation, and the Fed is likely to begin gradually raising rates at its October or December policymaking meetings." |