Markets fail to silence Chinese whispers

The FTSE 100 closed down over 4%, even though it bounced back in the afternoon. 

Traders outside the London Stock Exchange
Source: Bloomberg
  • Chinese collapse is contagious
  • Commodities crumble as China cools
  • US dollar dives as Fed hike fades

The panic selling that started in China overnight is highly contagious and European equities couldn’t escape the barrage of selling. The afternoon trading session has provided a small bounce back, but European stocks markets have been crushed by the fear that China is about to crumble. The sea of red on trading screens is reminiscent of the credit crisis, and, like then, tensions are running high.

A small stabilisation in the selloff should not be confused for confidence, and traders are not trusting the pullback as it feels like the calm before the next storm. Dealers don’t know what to do with themselves because the market moves are so enormous and erratic, and their levels of fear are  outweighing their greed.

Commodity companies are the worst of a bad bunch and their losses know no bounds. Mineral extractors are in freefall because China is on the verge of a major deceleration in growth, and no other country can pick up their slack when it comes to the amount of metals they used to import. Today is proof that the commodities super-cycle is well and truly over, and the golden days will not be returning.

The plummet in European equities today is a wakeup call that China is undergoing major problems, and proof that the slowdown in the second-largest economy in the world can no longer be ignored.

US stock markets witnessed a wild swing in today’s session, and when the Dow Jones is at its intra-day high and is still down over 2%, it really sums it up. Despite the drop in the US dollar, traders can’t be tempted to buy US stocks as the fear factor is too great. In times of crisis, cash is king, and not even gold is seeing much interest on a day like today.

If the Federal Reserve was worried by China’s stock market instability in July, they must be nearing panic mode by now. On a day like today, raising interest rates next month must be the last thing on Ms Yellen’s mind. The collapse in commodity prices will keep inflation low, and, if anything, the US may experience deflation down the  line on account of the Chinese crash. 

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