The MSCI Emerging Markets Index is heading for its biggest weekly loss since 2013, while the MSCI All-Country World Index has retreated 3.2 percent for the period, the worst since December, according to Bloomberg. That correction was caused by a combination of factors, one being the U.S. government near breach of its debt ceiling and subsequent credit downgrade from Standard & Poor’s, as well as fears about Greece’s financial condition.
At 12.30pm ET (16.30 GMT) the Dow Jones industrial average was down 294.5 points, or 1.73 per cent, at 16,696.19. The S&P 500 suffered its biggest daily percentage drop in almost four years on Friday, losing 64.8 points, or 3.19 percent. European equities sold off for a third day, with the Stoxx Europe 600 Index declining 13 percent from its record and in correction mode. For years, investors have been fretting that the market could drop sharply when the central bank starts raising rates. It means that the American leading index is now officially suffering a correction. The six-year bull run, which began as the last bear market ended in 2009, has helped drive up households’ holdings of stocks and mutual funds by more than $10 trillion. On Thursday, Vietnam devalued its currency, while Kazakhstan allowed its currency to float freely, prompting a decline of about 25 percent. But he said he is waving a ” yellow flag of caution” for the short term.
It’s been a gut check for global investors already tired by a year in which oil plunged 25 percent and currencies from the Turkish lira to South African rand and Colombian and Mexican pesos fell to all-time lows.
The worries were evident across the globe, both Friday and in the days before.
Tokyo’s Nikkei 225 index plunged 3% and Hong Kong’s Hang Seng Index fell 1.5%. The Nasdaq Composite fell 3.5% to 4,706.04, while the S&P 500 dropped 3.2% to 1,971.10. The oil industry was among the biggest losers as stocks dropped and oil prices briefly dipped below $40 a barrel – bad news for the America’s first tar sands mine. The price of oil slid below $40 a barrel for the first time since February 2009. Investors took it as a signal that the slowdown in the Chinese economy, the second-largest in the world, is worse than they had thought.
The immediate news sowing anxiety Friday was a survey of Chinese industrial companies showing manufacturing activity stagnating in August. Numbers under 50 present a contraction. As a result, Canadian energy stocks showed further weakness, with the TSX energy sub-index falling 10 per cent this week.
Analysts pointed to the stark difference between the relative health of the U.S. job market and broader economy, as well as the spread of market anxiety overseas. “We don’t see it. We’re really optimistic about the future”. “Throughout the past year, China has been very aggressive in its stimulus schemes, but they still aren’t enough to sustain high levels of growth“, David Madden, IG market analyst, said in a note.
But a delay in lifting rates may bring little comfort to investors if slowing global growth is underpinning the Fed’s caution.
The prospect of an increase as soon as September receded this week as the Fed released minutes of July meeting. But a Fed delay would be viewed by many as a gesture of support and a positive for stocks. “They are just waiting and they are going to step back in next week”. That’s dredging out the market’s worst enemy: uncertainty.
The U.S. Federal Reserve may wait until after September to lift interest rates.
Adding more pessimism into the market, US economic data came out weaker than expected. Tokyo and Europe, meanwhile, are keeping interest rates low and intervening in markets to buy bonds and, in Japan’s case, stocks.
Investors are selling the biggest winners of 2015.