China Stock Plunge Hits World Stocks, Dollar; US Stabilizes
New York: World stock markets plunged on Monday, after a near 9 per cent dive in China shares and a sharp drop in the dollar and major commodities sent investors rushing for the exits.
After dropping more than 1,000 points, or almost 7 per cent, at Wall Street's open, the Dow Jones industrial average eased losses but was still off more than 1 per cent at midday. The Standard & Poor's 500 index was down by a similar margin after the US benchmark earlier dropped nearly 10 per cent below its record.
A key measure of US equity volatility, the CBOE Volatility Index, or VIX, shot above the 50 mark for the first time since 2009, and the New York Stock Exchange was forced to implement special price-indication measures to allow for a more fluid start to trading.
Concerns about a China-led global economic slowdown and tumbling commodities prices had US traders fearing the worst after a 5 per cent decline in the both the S&P and Dow last Thursday and Friday.
"Anybody with a pulse was nervous when the market opened. We're still going to see significant price swings both up and down before the day ends today," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles. "The only thing that's certain is the volatility is going to continue in the short term, given the magnitude of the moves that we've already had in the last four days."
Shortly after noon ET (9:30 p.m. in India), the Dow Jones industrial average was down 219.88 points, or 1.34 per cent, to 16,239.87, the S&P 500 lost 28.04 points, or 1.42 per cent, to 1,942.85 and the Nasdaq Composite dropped 36.64 points, or 0.78 per cent, to 4,669.40.
European stocks closed off 5.4 per cent after Asian shares slumped to 3-year lows when a three month-long rout in Chinese equities threatened to get out of hand.
Oil plunged to six-and-a-half year lows, while safe-haven US government and German bonds, as well as the yen and the euro, rallied as currency concerns kicked in due to China's recent currency devaluation.
Many traders had hoped Beijing would have taken support measures, such as an interest rate cut, over the weekend after China's main stocks markets slumped 11 per cent last week.
With serious doubts emerging about the likelihood of a US interest rate rise this year, the dollar slid 1.6 per cent against other major currencies.
The Australian dollar fell to more than six-year lows and many emerging market currencies also plunged, while the frantic dash to safety pushed the euro to a seven-and-a-half month high above $1.17.
"Things are starting look like the Asian financial crisis in the late 1990s. Speculators are selling assets that seem the most vulnerable," said Takako Masai, head of research at Shinsei Bank in Tokyo.
US crude was last down 3.9 per cent at about $38.85 a barrel and Brent fell 4.3 per cent to $43.51 to take it under January's lows for the first time as concerns about a global supply glut added to worries about weaker demand from the normally resource-hungry China.
Copper, seen as a barometer of global industrial demand, hit a six-year low, as did Nickel.
Great fall of China
The near 9 per cent slump in Chinese stocks was their worst performance since the depths of the global financial crisis in 2007 and wiped out what was left of 2015's gains, which in June were at more than 50 percent.
With the latest slide rooted in disappointment that Beijing did not announce policy support over the weekend, all index futures contracts slumped by their 10 percent daily limit, pointing to more bad days ahead.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 5.4 per cent to a more than three-year low. Tokyo's Nikkei ended down 4.6 per cent and Australian and Indonesian shares hit two-year troughs.
London's FTSE 100, with its large number of global miners and oil firms, closed down 4.7 per cent for its 10th straight decline - its worst run since 2003.
"We are in the midst of a full-blown growth scare," strategists at JP Morgan Cazenove said in a note.