Global markets have been on shaky ground for the past several months, but since the end of last week, flashbacks to 2008 have become more frequent. The Dow Jones Industrials fell 560 points on Friday, marking one of the worst one day losses since 2008. To make matters worse, oil’s correction has officially been going on for over a year, and other commodities such as copper have been hit extremely hard. Greece debt woes put additional pressure on global markets as well, as Greece only recently was finally given another bailout. While there are certainly a lot of negatives out there, the biggest headwind the global economy and markets face is the crisis in China. The price action out of China this morning has led investors to dub today “Black Monday” for Chinese stocks.
Global investors wake up to Chinese “Black Monday”, Twitter reacts
Today, China’s Shanghai Composite Index closed the day down -8.5% to 3,209.31. The smaller Shenzhen index collapsed -7.7%, and the Hang Seng Index out of Hong Kong declined -4.8% Monday. For the Shanghai Composite, today’s decline marks the worst single day decline in eight years and officially whips out all of the index’s gains for the year. As I look at US equity futures right now, the Dow Jones is down -$852 points or -5.17%, S&P 500 is off -5.15%, and Nasdaq is off nearly -5%. Needless to say, China’s Black Monday is absolutely going to infect markets, we have a rough road ahead of us. Sentiment of Twitter this morning certainly highlighted panic. One tweet said, “$1 trillion wiped out in less than 24hrs #european #stocks !!! Gambling has that result #greatfallofchina seems out of control #Shanghai,” said @Kuulbuddy. “The great crash has begun… I predict complete chaos over the next few months till the end of ‘time’. #greatfallofchina #shemitah,” @PsychApocalypse. It seems that “#greatfallofchina” is a trending topic on Twitter this morning as traders from around the world lick their wounds from carnage.
Commodities see mostly red across the board
Commodities seem to have caught a cold from China and today’s price action continues to show that commodities could be heading down a brutal path. The only futures that are currently up are “safe haven” such as gold, which is up $3.60, 30 year Treasury Bond futures are up 1.30%, Japanese Yen is rallying up over 4%, Swiss Franc is hanging in there, up 2%, but US Dollar is down -2.19%. It is important to note that the Vix is currently up 35% to around $27. As I currently search the ticker, WTI is officially trading below $40, after falling -4.6% this morning. Copper is down nearly -4% to $2.2135, and the grain futures are all down significantly. Commodities have absolutely been caught up in the Black Monday phenomenon.
Investor focus turns to interest rate decisions out of US, China
The carnage investors have witnessed over the past week puts ever more pressure on the central banks of China and the US, as both weigh interest rate changes. In fact, investors were quite surprised that the Chinese government did not cut interest rates over the weekend, after a -11% drop in Chinese stocks last week. Turning to the US, just several weeks ago it seemed as though a September interest rate hike was very likely to occur, but based on the results of the past week and today, I find it extremely difficult to understand why the Federal Reserve would raise rates in September. While the Fed certainly is backed against a wall due to the fact that they have no interest rate cuts left to help the economy if it slows, an interest rate hike in the current environment would certainly be a mistake and lead to more volatility in the markets. “It is a China driven macro panic,” said Didier Duret, chief investment officer at ABN Amro. “Volatility will persist until we see better data there or strong policy action through forceful monetary easing,” (Reuters). Takako Masai of Shinsei Bank in Tokyo said he believes “things are starting to look like the Asian financial crisis in the late 1990s. Speculators are selling assets that seem the most vulnerable,” (Reuters).
The bottom line here is that if you have not performed maintenance on your portfolio in a while, it certainly would be a good idea to take a look at your portfolio to determine if there are profits that can be locked in, stop losses that could be put in place, etc. We are entering another period of volatility and it is important that investors protect themselves from the turmoil that is occurring in global markets currently. All eyes will continue to be on China, for signs of government intervention. However, thus far, it appears investors are on their own.