The fact that 2016’s first big panic attack is being fueled by China is fitting.
Most Asian stock markets inched higher Tuesday as China’s benchmark stabilized a day after plunging almost 7 percent.
Meanwhile, the major European markets are regaining some ground. News that Chinese rail freight volumes logged their biggest-ever annual decline in 2015 added to economic growth worries. Its explosive expansion lifted many other economies, especially Latin American countries that make the raw materials Beijing consumes. Investors want to see if the momentum kept going in December.
Reports showed that Chinese manufacturers are not producing as much as before.
“Investors are concerned about the likelihood of smoke and mirrors that surround the official economic data”, said Sam Stovall, managing director of USA equity strategy at S&P Capital IQ.
Furthermore, the end next Monday of a 6-month “lockup” on Chinese share sales by major institutional investors, may cause a massive evacuation from stocks, many fear.
A global recession would likely kill the bull market in US stocks, which are trading at expensive valuations despite logging their worst year since 2008.
A Reuters poll indicated stocks had fallen 500,000 barrels in the week.
CRUDE ENERGY: The price of USA benchmark crude oil fell 30 cents, about 0.8 percent, to $36.46 a barrel in trading on the New York Mercantile Exchange. United Kingdom stocks, however, remained slightly positive (http://www.marketwatch.com/story/uk-stocks-rebound-after-worst-day-in-three-months-2016-01-05), aided by mining shares, which were rising on the back of higher metals prices.
Tensions in the Middle East also flared up after one of the largest state executions in Saudi Arabia sparked a row with Iran.
The People’s Bank of China (PBOC) pumped around 130 billion yuan ($19.9 billion) in seven-day reverse repurchase operations in the markets, demonstrating it had not changed its easing bias, according to the Wall Street Journal.
It could also further dent confidence in the China Securities Regulatory Commission and in the wider financial regulatory framework to manage increasingly complex markets even as China’s economy struggles against major headwinds.
August 11 – China’s surprise devaluation of its currency spooks investors. The resulting stock drop markets in Shanghai and Shenzhen led authorities to halt trading under a “circuit breaker” mechanism announced late previous year.
Can China get back on track?
“There are still worries about the stability of the Chinese economy and the ability of the rest of the global economy to come to terms with the new China, one that no longer looks to double-digit GDP growth as the norm”.
It will be quite a challenge to keep growth at the 6.5 per cent level – which Xi says is vital for China to double its gross domestic product and income per capita in the decade through 2020 – while at the same time removing excess capacity in heavy industry and deleveraging, said Louis Kuijs, Hong Kong- based head of Asia economics at Oxford Economics.
The Nasdaq is down 115.98 points, or 2.3 per cent.