With the sell-off, the Dow fell to its lowest closing level in nearly ten months. It subsequently clawed back some of those gains by mid-morning to 6,333 points, down 0.8%.
Stock markets in Europe and Asia also closed deep in the red, and they’re lower again today.
The devaluation of the yuan has fueled concerns about the outlook for the world’s second-largest economy.
The fall in North American markets comes after world stock markets tumbled towards their worst week of the year on Friday and commodities got another kicking, as more alarming data from China sent investors scurrying to the safety of bonds and gold.
Markets in countries whose economic fortunes are closely linked to China’s growth tumbled.
The benchmark indexes in Australia, China, Hong Kong, South Korea and Japan are down 2-3% on mounting concerns over China’s slowing economy.
Lower Treasury yields in turn weighed on the dollar. The Dow has fallen over 5% so far this week. The Aussie, which is seen as a proxy for the Chinese economy, has fallen about 1% in the past week.
China’s economy expanded 7.4 percent last year, its weakest since 1990, and has slowed further this year, growing 7.0 percent in each of the first two quarters. In Thursday trading, West Texas Intermediate crude fell within 21 cents of $40 per barrel, but rebounded in later trading and was flat at $40.80. Brent crude for October delivery was down 29c at $46.33.
Unless emerging market currency pressures subside, our global growth checklist improves or the Fed swings to a more dovish stance than now expected (pushing out hikes into sometime next year), equity markets should remain under pressure.
The preliminary Caixin/Markit manufacturing purchasing managers’ index (PMI) came in at 47.1 in August, down from 47.8 in the previous month and the lowest reading since March 2009.
“The poor number confirms what higher frequency data has been suggesting, that more weakness in the economy is likely”, Chester Liaw, an economist at Forecast in Singapore, told the Guardian. The government reported that its manufacturing activity – a key sign of economic performance – hit a 6-year low in July.
U.S. Federal Reserve policymakers discussed China, Greece’s debt crisis and the weak state of the global economy at their last meeting in July, according to minutes of the meeting released this week.
Chinese authorities have struggled to stabilise the country’s stock markets after a near-collapse in early summer, and stunned financial markets this month by devaluing the yuan by almost 2 percent. Overnight on Wall Street, the S&P 500 sank to a more than six-month low on concerns about how China’s slowdown would impact US firms’ earnings and global growth.
Analysts have warned that China will struggle to meet its official economic growth target of 7 percent this year if it doesn’t ratchet up policy support to combat cooling activity. It has now been in decline for eight consecutive weeks, the longest streak since 1986.
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