Happy new year, investors. US stocks have suffered their worst first week of the year since records began.
The Standard & Poor’s 500 and Dow Jones Industrial Average fell by 6% and 6.2%, respectively, in the biggest ever fall for the first five days of January and the worst for any week since September 2011.
The losses amounted to “more than the estimated US student loan debt and 12% of the US debt”, notedHoward Silverblatt, senior index analyst at S&P Dow Jones indices.
The US stock declines follow drops in markets across most of the world sparked by renewed concerns about the health of the Chinese economy, the world’s second-largest. This week’s declines wiped more than $2.3tn off the value of global stock markets, according to the S&P Global Broad Market index (BMI).
Every major European stock market also fell on Friday, with the pan-European FTSEurofirst 300 index also suffering its worst week since 2011.
The FTSE 100 in London lost 0.7%. That took the FTSE 100’s losses this week to 5.3%, wiping almost £85bn off the value of the biggest 100 companies.
There were also sharp moves on commodity markets. The prospect of weaker global growth coupled with a supply glut pushed the price of crude oil to its lowest level for almost 12 years.
The price of Brent crude, the global benchmark, had risen more than 2% on Friday after China sought to boost the yuan, and its stock exchanges abandoned a new “circuit breaker” mechanism that had been blamed for much of the stock market havoc.
However, in an echo of the see-saw pattern in stock markets those gains were later erased and Brent was trading at about $33 a barrel, near a low hit in 2004.
With worries about a global downturn intensifying, investors offloaded riskier shares and flocked to so-called safe-haven assets such as gold and government bonds.
“So much for the new year bringing some relief to the markets” said credit strategists at the French bank Société Générale.
“Worries about China, the endless drop in oil prices and even new geopolitical tensions pounded the markets, punishing risk assets with a flight to quality that was in full swing,” they wrote, in a research note entitled: What’s the Chinese for “ouch”?
Chinese stock markets were suspended twice in a week after 7% falls tripped a new circuit breaker mechanism. It had been intended to stem sharp sell-offs but in the end appeared to have the opposite effect. In a dramatic U-turn, the mechanism was withdrawn just days after it had been introduced.
Chinese stocks recovered by 2% on Friday after the yuan edged higher following days of depreciation that spooked investors and fuelled capital flight out of the country.
Jasper Lawler, market analyst at CMC Markets, said: “China’s removal of counter-productive circuit breakers, state buying and a rise in the yuan helped prevent another stock market rout and alleviated concerns that the central bank would continue the rapid devaluation of the currency.”
After a day of wild trading, the Shanghai composite index and the CSI 300, which comprises the biggest stocks from the Shanghai and Shenzhen stock exchanges, finished about 2% higher, at 3,186.78 and 3,361.56 respectively. Hong Kong’s Hang Seng added 0.6%.
The latest bout of stock market turmoil presents a major challenge to the Chinese president, Xi Jinping, who has portayed himself as the country’s top economic steward, ahead of prime minister Li Keqiang.
Xi was reportedly livid over a humiliating stock market debacle in mid-2015, lambasting senior economic officials after he appeared on the front cover of the Economist fighting to prop up Chinese shares.
This article was written by Rupert Neate in New York, Katie Allen in London and Tom Phillips in Beijing, for theguardian.com on Friday 8th January 2016 23.17 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010