The great fall of China: Growth fears send stocks, oil tumbling

Wall Street falls nearly 4% after Shanghai Composite's 8.5% drop triggers global selloff.

See also: China syndrome ‘a healthy release of steam’ – UBS economist Robin Clements

Global stocks and commodity prices plunged the most in years as the weak Chinese sharemarket fell another 8.5% and triggered an international selloff.

In overnight developments:

  • Wall Street dropped more than 1000 points before clawing back nearly half the losses
  • Stocks in Asia and Europe fell the most in five years
  • Oil prices dropped to their lowest in six years

Blue chip stocks on Wall Street fell 3.6% as the Dow Jones Industrial Average had its biggest ever one-day point decline on an intraday basis.

Within minutes of trading, the Dow plummeted 1089 points as markets in Asia and Europe reacted to Black Monday’s 8.5% drop in the Shanghai Composite Index.

At the close, the Dow’s loss was pared to 588.47 points at 15,871.28. The S&P 500 was down 77.68 points or 3.9% to 1893.21, while the Nasdaq Composite Index was down 179.79 points or 3.8% at 4526.25.

The Dow entered a correction on Friday, falling 10% from its recent peak, following its worst week since 2011.

Asia, Europe stocks tumble
The Shanghai Composite’s fall of 8.5% wiped out all gains this year and dragged down all markets in Asia. Stock indexes from Japan to Australia slid more than 4%.

In other markets, stocks fell 5% in Toronto, while other serious falls occurred in oil-dependent Saudi Arabia, Mexico and Brazil.

Shanghai’s loss was its biggest percentage decline since February 2007, leaving the market down 0.8% for the year and down 38% from its mid-June peak.

The Stoxx Europe 600 closed 5.3% lower, the biggest one-day decline since December 2008. The index is now sightly lower so far in 2015.

Germany’s DAX fell 4.7% and has now lost more than 20% since its April peak, meaning the index has entered a so-called bear market. Germany’s stock market, which contains many car makers and industrial firms with a big chunk of their sales in China, has been among the worst-hit by the recent selloff.

The UK’s FTSE fell 4.7% to its lowest close since late 2012.

Brent oil drops below $US45 a barrel
The global oil benchmark, Brent, fell through its January lows to trade below $45 a barrel for the first time in six years. Brent was down $US2.36, or 5.2%, to $43.10 a barrel.

US oil futures traded down $US2.02, or 5%, to $US38.43 a barrel, the lowest intraday price since February 2009.

The panic sent investors stampeding for relatively safe assets such as US government bonds, the Swiss franc and the yen. The yield on the 10-year US Treasury note dropped below 2%.

Fears that China’s economy is in worse shape than many had thought surfaced two weeks ago when Beijing unexpectedly devalued its currency.

This was explained as a move toward market-based trading – a condition for the yuan to enter the IMF;s global basket of currencies.

But since then  more weak economic data have fuelled fears that a drop-off in Chinese growth could cause a global slowdown.

Investors were further rattled by the lack of fresh steps to stem the selloff over the weekend from Chinese authorities.

The Wall Street Journal reported that the Chinese central bank was preparing to flood the banking system with liquidity to increase lending.

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