Daily Management Review

Poor Chinese Output Report for August Shakes Up Global Markets


Poor Chinese Output Report for August Shakes Up Global Markets
Proving speculations of a slowing economy behind the successive devaluation of the Chinese Currency last week, a private survey showed that China’s factory sector shrank at its fastest pace in more than six years in August as domestic and export demand dwindled.

This data added worries for the second largest economy of the world and created panic across financial markets around the globe.

The FTSE 100 hit its lowest level this year after further signs of a weakening Chinese economy spooked investors. Investors and analysts fear that this week could be the worst for the FTSE this year.

“As it stands, the FTSE 100 is on course to post its biggest weekly decline of the year so far and there’s not a great deal on the agenda that would appear to have the ability to salvage the situation before the weekend break,” Tony Cross, an analyst with Trustnet Direct in London, said.

Concerns over China’s slowing economy have resulted in the fall of European shares to a seven-month low. The index of top European shares, FTSEurofirst 300 fell 1% to 1,462.78 points. This was the lowest it had touched since January this year and analysts predict that the index is headed for further falls this week.

There was a 0.5% decline in Germany’s DAX which was some 16% below record highs reached in April.

There were sharp falls in the US market as well for the fourth consecutive day on Friday before markets closed for the week end. There was a fall of more than 1% in all three of the major indices due to the latest data from China that created fears of a China-led global slowdown.

Analysts expect that there would be a sharp fall, the most since November 2011, in the Dow Jones industrial average and the S&P. analysts also fear that NASDAQ would also reach its lowest point since August 2011. The Russell 2000 .RUT entered correction territory.

Led by the consumer discretionary sector all 10 major S&P sectors were in the red and there was heavy of stocks. There was a downfall of more than 1% in eight of the 10 sectors.

There was a jump of as much as 18.6 percent to reach 22.71 for the CBOE Volatility index .VIX, a measure of the premium traders are willing to pay for protection against a drop in the S&P 500. This was a six month high with the biggest rise in the year happening this week itself.

The biggest stock to fall on the NASDAQ was Apple that fell 3.2 percent to reach $109 per share. Apple does a sizeable business in China as well as export units are based in China for its iPhones.

The global markets have been in this mood ever since China surprisingly devalued their currency three days in a row increasing speculations about the growth rate of China. The actual Chinese growth rate has always been a mystery for the world markets and analysts saw the currency devaluation as a cover up measure by the Chinese authorities to provide some stimulus to the economy.

The negative growth report coming out of the private survey of  the Chinese economy led credence to the speculations and fears resulting the sharp fall in global markets.

(Source: www.theguardian & www.reuters.com)