Wednesday 20 June 2018

US stocks back from the dead after Black Monday nightmare

A broker reacts while trading at his terminal in Mumbai yesterday. India’s BSE index fell more than 5pc as world markets slumped
A broker reacts while trading at his terminal in Mumbai yesterday. India’s BSE index fell more than 5pc as world markets slumped
Colm Kelpie

Colm Kelpie

US stocks staged a dramatic recovery yesterday after the Dow Jones briefly plummeted around a 1,000 points on opening amid further turmoil in global financial markets sparked by investor worries over China.

In a day dubbed Black Monday by China's media mouthpiece, European stocks plunged the most since 2008, oil hit a six -and-a-half year low and other commodities fell.

European shares followed falls in China that saw Hong Kong's Hang Seng Index close down more than 5pc in what was the worst trading day in the country for eight years.

With all eyes on US stocks to see how they would react amid the global sell-off, the Dow Jones plummeted on opening before recovering ground. It was down 3.5pc by 8pm yesterday, helped by a recovery in Apple's stock price.

The cause: investor worries over a Chinese slowdown that has seen persistent falls in Chinese stocks. And those worries intensified yesterday after Chinese government support measures failed to allay investor fears that a slowdown in the world's second biggest economy is deepening.

"Everyone seems to be selling off, and there's panic," said Michael Woischneck of Lampe Asset Management in Dusseldorf, Germany.

"There's no rational choice anymore, no rational reaction."

Bloomberg estimated that since Beijing's unexpected devaluation of the yuan on August 11, more than $5 trillion has been wiped off the value of global equities.

China's stocks plunged the most since 2007 in a day dubbed 'Black Monday' by the Xinhua news agency.

The sell-off had a knock-on effect across global markets, with stock markets in Frankfurt and Paris falling 4.7 and 5.4pc respectively.

Exacerbated by a sharp fall in FBD shares, the ISEQ closed down 5.05pc, having lost more than 6pc at one point. It was the worst day for the Dublin index in exactly five years, having fallen by 5.78pc on August 24, 2010.

All but three of the shares in the Stoxx Europe 600 Index retreated yesterday, driving the gauge down 4.5pc. Germany's DAX dropped 3.9pc, taking the decline from its peak in April to more than 20pc.

The pan-European FTSEurofirst 300 ended 5.4pc lower, wiping roughly €450bn off its total market capitalisation - its worst daily closing performance since November 2008.

The index was down 7.8pc at one point, its worst intraday loss since October 2008, just after the demise of US investment bank Lehman Brothers.

The volatility swept across the Atlantic and at the opening in the US, the Dow Jones industrial average briefly slumped more than 1,000 points, its biggest point-drop ever.

But a dramatic turnaround by Apple helped the Nasdaq composite and the S&P 500 indexes pull away from levels that would have put them into correction mode.

Nine of the 10 major S&P 500 sectors were down, with energy and finance losing about 1.5pc. At one point, all 30 stocks on the Dow and more than 90 percent of the S&P 500 stocks were at least 10pc below their 52-week highs.

"I think emotions got the best of investors," said Philip Blancato, chief executive at Ladenberg Thalmann Asset Management in New York.

"The conjecture that the Chinese economy can propel the US economy into recession is ridiculous when it's twice the size of the Chinese economy and is consumer based."

US oil prices were down about 4pc at six-and-a-half-year lows, while London copper and aluminium futures hit their lowest since 2009.

Oil majors Exxon and Chevron recovered somewhat to trade down about 1.5pc, having fallen more then 6pc earlier. US oil and gas companies have already lost about $310bn of market value this year. (Additional reporting agencies)

Irish Independent

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