Market Talk: Global Markets Volatile This Week

Global markets have been on a turbulent trading ride this week, with volatility ruling the markets. This past Monday, August 24th was the worst day for U.S. stocks in four years, while Tuesday brought gains but a disappointing finish to the day. Major U.S. indices fell at least 10% since last Monday as worries about China’s economy and the Fed’s plan to raise interest rates shook markets.

China’s market has been turbulent all summer, when their stock market started falling in June. Since then, Chinese leaders have been working to prop up the country’s markets and the continued economic unease has stocks struggling across the board. Monday brought the sharpest losses, with a loss of 8.5% in China’s Shangai Composite. By the end of Tuesday, stocks on China’s major indexes dropped more than 7 percent, lengthening the biggest four-day streak of losses since 1996. China’s central bank responded by saying it would cut interest rates for the fifth time in nine months in an effort to shore up slowing growth.

Lower interest rates make it cheaper for individuals and businesses to borrow money in order to fund spending and investments. They also make saving money in deposit accounts sound a lot less attractive. The central bank in China cut the benchmark rate for a one-year loan to 4.6 percent from 4.85 percent. Banks will also have more money available to lend to consumers and businesses because of a reduction in the amount that banks are required to set aside as a proportion of their total deposits. This “reserve requirement” has been cut from 18.5 percent to 18 percent.

The big sell-off in China on Monday rattled global markets throughout Asia, Europe, and the United States. The Down Jones Industrial Average and the S&P 500 closed in negative territory, with the Dow losing nearly 600 points and the S&P some 4 percent lower. Most hope that the Chinese interest rate cut will help bolster the negative sentiment in global stock markets about the country’s rate of economic growth.

The highly volatile global markets made some companies behave unusually. For example, Apple—which is largely aloof from its investors—had Tim Cook write an email to CNBC to stress that its China business was doing well.

U.S. stocks did rally for most of Tuesday, until the rebound dissipated in the last hour of trading. Emerging economies continue to feel the pressure of China fears as well. Malaysia’s currency, the ringgit, fell to its weakest level against the dollar since 1998 and futures on commodities, like copper moved lower, while oil futures moved slightly up, but still at a near six-year low.

Many companies and countries around the world have come to depend on the Chinese economy and are now concerned that China’s growth is lower than what official figures originally suggested. Economists are now concerned that China’s many efforts to boost the economy, will fall short. If growth continues to sputter and stumble, leadership pledges to make their economy more market-driven may fail. Minggao Shen, the head of China research in Hong Kong for Citigroup wrote in a report that, “The Chinese authorities are aiming to stabilize the equity market, the renminbi exchange rate and the economy. The key to win the triple battle will rely on growth stabilization via a combination of policy easing and meaningful reforms in the real economy.”

Economic woes in China have a big global impact for many companies. “American companies like General Motors or Yum Brands, who count China’s rising middle class among their biggest customers; on Australian iron ore exporters or Peruvian copper miners; on Japanese industrial robot manufacturers or French luxury goods retailers.” Additionally, the uncertainties over China have also prompted some to question whether, or how soon, the United States Federal Reserve will potentially raise interest rates. Americans are waiting to see if the Fed will end its six-year period of super-low rates as soon as September. However, while data is still being compiled for the rapidly approaching decision, the potentially worsening outlook for China could complicate the timing for a rate hike, even as the U.S. economy continues to improve.

On Tuesday, China’s premier, Li Keqiang said, “Currently, global economic trends are opaque and confusing, and market volatility is quite large, and this has had some impact on the Chinese economy. But fundamentally the overall stability of the Chinese economy has not changed.” As markets around the world continue to watch, react, and wait many investors are riding a rollercoaster of feelings themselves. If you’re stressed, concerned, or have questions, talking to a financial advisor can help with your portfolio, to understand the market, and look at options for your wealth. Call one of our experts at Apex Financial Advisors today, and don’t let emotional investing get the best of you.