Hundreds of billions of dollars were wiped off global stocks on Monday as a panic that started in China spread across the world on a day dubbed by China’s official news agency, Xinhua, as “Black Monday”.
The Dow Jones Industrial average fell 586 points, or 3.56%, to 15,871 – a drop of more than 13% from its record high reached in May. When the markets opened the Dow plunged 1,089 points – the index’s largest ever intra-day decline - before staging a slight recovery. It was the second consecutive trading session in which the Dow has lost more than 500 points. After the Dow reached that record high just three months ago, August is on track to be the its worst month since February 2009.
The S&P 500 closed down 3.9% and Nasdaq lost 3.82% – both ending the day at 10-month lows. Monday saw the biggest one-day percentage falls for all three indices since 2011, according to Reuters. Markets in most of the rest of the world also suffered some of the biggest one-day falls so far this year.
The White House reassured worried investors that the US economy would be better able to withstand a China-induced slowdown in the global economy than it had been in 2008, when the collapse of Lehman Brothers lead to a near-meltdown of the global banking system.
“There is no doubt the global economy is more interconnected that it ever has been,” Josh Earnest, Barack Obama’s chief spokesman, said. “What I would encourage people to evaluate is the ongoing strength and resilience of the US economy.”
Nick Kounis, head of financial markets research at investment bank ABN Amro, said: “The potent and self-reinforcing cocktail of worries about China, emerging markets and commodities has triggered a global rout in equity markets. Against this background all eyes are now on the Chinese authorities. We think they will deliver with further monetary easing sooner rather than later.”
The falls were triggered by a collapse in the Chinese stock market, which dropped 8.5% – a fall dubbed “Black Monday” by China’s official news agency, Xinhua. It was the biggest one-day drop on the Shanghai exchange since 2007.
The pan-European FTSeurofirst300, which comprises Europe’s 300 biggest companies, closed down 5.4% to its lowest level this year, taking around €450bn ($521bn) off its combined value.
Germany’s Dax lost 5%, France’s Cac shed 5.6% and Spain’s Ibex lost 5.7%. The FTSE100 in London closed down 4.67% to 5,899 points, wiping more than £73.9bn ($116.3bn) off the index of leading UK shares. It was the first time the index had dropped below the 6,000 mark since early 2013, with almost all companies in the red, and fresh off a week of declines. A total of almost $10tn has been wiped off global stock market since June.
“There is a lot of fear in the markets,” said Bernard Aw, a market strategist at IG in Singapore. “The risk sentiment is really on the verge of panic, which is why we are seeing plenty of red screens. The Chinese stock market fell really spectacularly.”
The tumultuous day on the markets greatly reduces the chance of the US Federal Reserve moving to increase interest rates in September, something that had been widely expected by economists.
Lawrence Summers, a former US Treasury secretary, said raising rates soon would be a “serious error”.
“A reasonable assessment of current conditions suggests that raising rates in the near future would be a serious error that would threaten all three of the Fed’s major objectives: price stability, full employment and financial stability,” he said in an opinion piece for the Wall Street Journal.
He also posted on Twitter to warn that “we could be in the early stage of a very serious situation”.
Barclays economists on Monday pushed back their forecast for a rate rise from next month to March in the wake of the high volatility in global markets.
“Given the uncertainty around the current global outlook, the timing of the rate hike seems more uncertain than usual,” they said in a note to clients. “Should this episode of financial market volatility prove transitory, the FOMC [Federal Open Market Committee] could raise rates in December. On the other hand, if the volatility proves durable or reveals greater than expected weakness in global activity, the FOMC may push the first rate hike beyond March. We see a delay past mid-2016 as a relatively low probability at this point given our views on US labor markets.”
Not even the personal intervention of Apple chief executive Tim Cook could prevent a slide in the company’s stock due to concerns about its future performance in China, which it has identified as a major growth area.
Apple shares, which dropped 13% at the opening bell, recovered to end the day 1.7% off after Cook emailed CNBC host Jim Cramer to say he wasn’t overly worried about the apparent crisis in China.
“I get updates on our performance in China every day, including this morning, and I can tell you that we have continued to experience strong growth for our business in China through July and August,” Cook said in an email to CNBC host Jim Cramer. “Obviously I can’t predict the future, but our performance so far this quarter is reassuring.”
Oil prices, which have been falling for a week, tumbled 6% to a fresh six-and-a-half-year low. Brent October crude fell $2.77, or 6.1%, to settle at $42.69 a barrel, after plunging to a contract low of $42.51, the lowest front-month price since March 2009.
This article was written by Rupert Neate in New York, for theguardian.com on Monday 24th August 2015 21.03 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010