Concerns grow over China's economic health

  • 08/01/2016
Concerns grow over China's economic health

Shares on major exchanges have fallen for a sixth straight day and crude oil prices touched multi-year lows as investors fretted over the state of China's economy and its ability to stabilise its stock market.

In a move that deepened concerns over China's economic health, the People's Bank of China set the yuan midpoint rate lower for an eighth consecutive day. The 0.5 percent decline was the biggest between daily fixings since August.

China suspended a circuit breaker implemented at the start of 2016 that stopped trading for the day when the benchmark index fell 7 percent, a halt already triggered twice this week. Analysts and investors said the mechanism, put in place to avoid market volatility, may have backfired.

"People see the weakness in China and in the overall equity market and think there's going to be an impact on corporations here in the United States," said Robert Pavlik, chief market strategist at Boston Private Wealth in New York.

Rounding out its worst four-day start to a year in more than a century, the Dow Jones industrial average fell 392.41 points, or 2.32 percent, to 16,514.1.

The S&P 500 lost 47.17 points, or 2.37 percent, to 1943.09 and the Nasdaq Composite dropped 146.34 points, or 3.03 percent, to 4689.43.

A gauge of major stock markets globally fell 2.2 percent and Nikkei futures were down 2.6 percent.

Investors fear China's economy is even weaker than had been imagined, with Beijing, in a bid to help exporters, allowing the yuan's depreciation to accelerate. The move risks triggering a cycle of competitive devaluation, said Mexican Finance Minister Luis Videgaray.

The US dollar tumbled 0.9 percent against a basket of currencies, losing 1.4 percent to US$1.0929 versus the euro and 0.7 percent to the yen at Y117.63.

Brent crude cut a loss of more than 6 per cent to trade down 1.6 percent, while US crude, down as much as 5.5 percent earlier, was down 2.3 percent.

The benchmark US Treasury yield touched its lowest since late October. US 10-year Treasury notes were last up 8/32 in price to yield 2.1491 percent, from 2.177 percent late on Wednesday (local time).

Gold touched US$1110 an ounce for the first time in nine weeks as the US dollar fell and investors rushed into perceived havens. Spot gold rose 1.35 percent to US$1109.10 an ounce. Its 4.6 percent gain up to Thursday was the best four-day run for gold in a year.

Copper prices touched a low not seen since May 2009.