Despite today’s big drop in the markets, looking “under the hood” of the economy still projects growth in the second half of 2015. In the U.S., the selling started early and never let up.
Market watchers sought to put the weekly market rout in perspective by emphasizing the U.S. economy’s overall strength.
Although most economists still expect that the U.S. central bank will raise interest rates as early as September, an increasing number now say it’s possible the Fed is rethinking its plan. Both are at six-year lows. Again, China is under the spotlight given questions about whether government interventions have stabilized its domestic stock market.
In Europe, markets finished the week with heavy losses on Friday.
The Hang Seng index in Hong Kong was down 2.4 percent for a weekly loss of 7.4 percent. Shares came under fresh pressure in afternoon trade as the U.S. oil benchmark slid below $40 a barrel (http://www.marketwatch.com/story/oil-prices-under-pressure-in-asia-after-weak-chinese-manufacturing-data-2015-08-21) for the first time since February 2009 in response to global-demand concerns and a persistent supply glut. Japan’s Nikkei declined 2.9 percent, 5.2 percent on the week.
“China’s weakness and response to its own weakness is rippling throughout the global feedback mechanism”, Jim Russell, a principal and portfolio manager at Bahl and Gaynor, which manages and oversees $14 billion in assets, told CBS MoneyWatch. The Shanghai Composite index suffered another steep drop of 4.3 percent on Friday.
“While the decision to have a new vote is likely to increase political uncertainty in the short term, a fact acknowledged by Moody’s the ratings agency, the hope is that the more dysfunctional members of his government will get pushed to the sidelines”, said Michael Hewson, chief market analyst at CMC Markets. Brent crude, which is used to price worldwide oils, shed $1.26 cents to $45.35 in London. They were already feeling a downward pull after minutes from the Federal Reserve’s July meeting this week offered little clue of a near-term rate hike.
Q: When was the final time we had a correction? In Britain, the FTSE 100 index dropped 2.8%.
On Thursday, stock prices dropped by 2 percent or more in German, French and U.S. markets.
Patrick O Hare of Briefing.com said that underpinning the selloff is investors losing faith in the ability of central bankers to use monetary policy to stimulate growth.
In the commodity markets, gold gained $6.40 to settle at $1,159.60 an ounce.
The sell-off was in full swing when the markets closed and could continue when they open Monday, according to Christine Armstrong, executive director at Morgan Stanley.
“If China’s economy does slow to 6.5 percent this year, that could be considered a mild recession for them”, Cardillo said. Beijing is trying to shift from an economy that relies on selling cheap goods overseas to one based on steady consumer spending.
But he also pointed to pricey valuations recently, given modest growth prospects in the US economy. The measure was apparently aimed at stimulating China’s exports, but one analyst at a major securities firm said, “Concerns that the Chinese economy is in that bad a shape as to need a cut [in the rate] have grown”.