‘Black Monday’ in China sparks stock dump and markets-plunge

Europe slips up to 5% while Dow stages late rally, writes Simon Carswell in Washington

Traders outside the New York Stock Exchange. Global markets plunged again on Monday. Photograph: Lucas Jackson/Reuters

Traders outside the New York Stock Exchange. Global markets plunged again on Monday. Photograph: Lucas Jackson/Reuters

 

A tumultuous fall in Chinese equities dubbed “Black Monday” by Xinhua, the official state news agency, triggered a ferocious sell-off in international markets on Monday as fear spread of the potential impact of slowing growth in China on the global economy.

The Iseq index of Irish shares dropped 5 per cent to close at 5,861 points, with building materials giant CRH, the biggest single constituent of the Iseq index, dropping 5.87 per cent to €23.575, a fall that traders said was “not out of context” with what was happening generally.

Investors in the US stock market dumped shares in early trading as fears spread from other global markets that the slowdown in the world’s second largest economy China may be worse than feared. However, Wall Street clawed back some of the losses late in the day, closing down 3.57 per cent or 588.4 points, at 15,871.5.

The Eurofirst 300 index’s loss was trimmed from 8.2 per cent but still closed down 5.4 per cent, its worst day since the financial crisis. In London, the FTSE 100 fell 4.7 per cent, its sharpest decline since September 2011.

Panic

Stocks plunged just seconds after Wall Street opened, following declines earlier in Asia and Europe sparked by stock market turmoil in China which the country’s official news agency called Black Monday.

The rippling effect of global plunge reminded the market of the panic that gripped investors during the recent financial crisis.

American share prices see-sawed wildly in the worst volatility since 2011 when there were fears of a double-dip recession in the US.

The key Dow Jones index fell a hair-raising 1,089 points, or 6.6 per cent, shortly after opening before rebounding and later falling again in a chaotic day for jittery investors.

US stocks have already fallen more than 10 per cent from an all-time high, in May, before Monday’s globe-spanning plunge in what appears to be the first so-called market correction since April 2011.

Global stocks have lost almost $10 trillion (€8.6 trillion) since June.

The early decline compared to a 733-point or 7.8 per cent one-day fall in the Dow Jones index in 2008 at the height of the crisis.

It was still some way off the most famous stock market crash of 1987 when stocks dropped 22.6 per cent on Black Monday.

China’s economic vulnerability – the country recently devalued the yuan following a slump in trade and reported an unexpectedly large fall in July exports – spooked American investors, leading to fears that the home country for many US products may be in serious trouble.

The country’s slowing economy has rippled across the markets and raised fears about the effect of the contraction on the global economy.

China accounts for 15 per cent of the world’s economic output and has been responsible for more than half the growth in recent years.

Uncertainty around whether the Federal Reserve, America’s central bank, will raise interest rates next month has added to the volatility.

Major US companies including General Electric and telecoms giant Verizon suffered share-price declines on Monday – some double-digit percentage falls – before recovering much of their losses later.

Technology giant Apple fell below the $100 a share mark in pre-market trading during the session, adding to more than $150 billion in investor losses since the stock peaked in April.

The rattled stock market hurt commodity prices too. Crude oil fell below $40 a barrel for the first time since the 2008 financial crisis.

Investors sought refuge in safer assets such as gold and US government bonds as the yield, the borrowing rate on American federal government debt, fell below 2 per cent for the first time since April.

Noting the stock declines, former US treasury secretary Larry Summers said: “As in August 1997, 1998, 2007 and 2008 we could be in the early stage of a very serious situation.”

The US market tremor was noticed too in the political arena. Republican presidential frontrunner Donald Trump, who has pledged to take jobs back from China in his bombastic campaign, didn’t miss the opportunity to milk economic fears to push his candidacy.

“Markets are crashing – all caused by poor planning and allowing China and Asia to dictate the agenda. This could get very messy! Vote Trump,” tweeted the property magnate.

$5 trillion

“What we’re seeing is not a reasonable correction,” said David Stubbs, global market strategist at JPMorgan Asset Management. “We’re definitely in the world of psychological downturn and real concern about the future.”

The price of oil slid by as much as 5 per cent, reaching levels not seen since the financial crisis, and commodities and commodity stocks were hard hit, along with emerging market currencies.

US Treasuries, the haven of choice for jittery investors, rallied as money seeped out of stocks, with the 10-year government bond yield slipping below 2 per cent for the first time since April.

The apparently receding likelihood of a Fed rate rise next month led to a fall in the value of the dollar, which fell 1.7 per cent to a seven-month low against the euro, and by 3 per cent against the yen.

“Market expectations [of a September rise] have been scaled back, and it’s natural for the euro to trade quite strongly against the dollar amid today’s risk-off type movement,” said Nomura FX strategist Yujiro Goto.

– (Additional reporting The Financial Times Limited 2015)