LOUSY WEEK: Despite Friday’s gains, the market is on pace for its worst week since August.
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China, the world’s second largest economy, announced that it will from tomorrow suspend the stock market circuit breaker mechanism that has been implemented since the beginning of this year, state-run Xinhua news agency reported. There are fears that once the ban has expired, it will trigger panic selling and weaken China’s economy.
In a painful echo of the summer rout that wiped trillions of dollars off valuations, mainland investors ran to the sidelines on growing fears about the world’s number two economy, a key driver of global growth.
Meddling in markets can only lead to misery – at least, that’s certainly what many in China’s financial circles may now be thinking. The halts, which went into effect at the beginning of the year, were triggered twice this week. Technology stocks were among the hardest hit. The CAC-40 in France slid 1.6 percent.
At 9:42 am, trading was suspended for 15 minutes after the Hushen 300 dropped by over five per cent. At one point it was down 442 points. The Standard & Poor’s 500 index lost 44 points, or 2.2 percent, to 1,946. The Dow average is down 9.8 percent from its peak in May, and the S&P 500 index has lost 8.8 percent since then.
European markets also dropped. It sank 70 cents, or 2.1 percent, to $33.27 a barrel. Brent crude, used to price worldwide oils, rose 39 cents to $34.14 a barrel in London. Industrial stocks also fell. Citigroup gave up $2.56, or 5.1 percent, to $47.56.
The S&P/TSX composite index ended the day off roughly 20 per cent from its all-time high in September 2014 – a loss considered by many as a bear market.
The markets have endured a rough few days to start 2016.
The latest plunge in Chinese stocks was set off by concern Beijing is allowing its yuan to weaken too fast against the dollar.
Worries about China have been fueled by a decline in the value of the yuan and disappointing economic data.
Influential business publication Caixin also quoted social media speculation that the head of the CSRC, Xiao Gang, had tendered his resignation in response to this week’s chaos on the markets, but this has yet to be confirmed.
The price of gold added $15.90, or 1.5 percent, to $1,107.80 an ounce. The pan-European FTSEurofirst 300 index slumped 2.2 percent. Among energy companies, shares of BG Group PLC dropped 6.3% and BP PLC lost 5.3%. Hong Kong slumped 2.4 percent by lunch and while Tokyo shed 2.2 percent. The euro rose to $1.0795 from $1.0778. The dollar fell to 117.750 yen from 118.38 yen.
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“There is a wall of worry under full construction, brought on by China, fall in oil prices and uncertainty regarding quarterly earnings”, Terry Sandven, chief equity strategist at US Bank Wealth Management in Minneapolis told Reuters.
