Concerns mount over state of China's economy

  • 08/01/2016
(file, Reuters)
(file, Reuters)

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

China suspended a circuit breaker set up at the start of 2016 that stopped trading for the day when stocks fell 7 percent, a halt that had already triggered twice this week.

Analysts and investors said the mechanism, put in place to avoid market volatility, may have backfired.

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

"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.

The Dow Jones industrial average on Thursday fell 388.34 points, or 2.3 percent, to 16,518.17 in what could be its worst start to a year in more than a century.

The S&P 500 lost 45.09 points, or 2.27 percent, to 1,945.17 and the Nasdaq Composite dropped 130.87 points, or 2.71 percent, to 4,704.90.

The pan-European FTSEurofirst 300 index and the euro zone's blue-chip Euro STOXX 50 index closed down 2.3 percent and 1.7 percent, respectively.

A gauge of major stock markets globally fell 1.9 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.

This graphic shows how currencies, stocks, commodities, bonds and some economic indicators have reacted to the yuan decline since August.

The US dollar tumbled 1 percent against a basket of currencies, losing 1.5 percent to US$1.0937 against the euro and 0.8 percent to the yen at Y117.48.

Brent crude cut a loss of more than 6 percent 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.

Gold climbed above US$1,100 an ounce for the first time in nine weeks as the US dollar fell and investors rushed into perceived havens. Spot gold was last up 1.3 percent at US$1,109 an ounce. Its 4.6 percent gain so far this week is the best four-day run for gold in a year.