Stocks fall worldwide after Chinese markets plunge

Trader Peter Mancuso, center, works on the floor of the New York Stock Exchange, Monday, Jan. 4, 2016.

It was the first time China used a new “circuit breaker” mechanism.

Trading on mainland China’s stock markets was suspended on Monday, the first day of business of 2016, as the country’s weakening currency, combined with tepid surveys of domestic factory activity, spooked investors in the world’s second-largest economy, causing a massive sell-off, including of entertainment industry stocks.

The Standard & Poor’s 500 index lost 37 points, or 1.8 percent, to 2,006. The Nasdaq composite gave up 130 points, or 2.6 percent, to 4,876.

Overseas markets fell even more.

The UK’s blue-chip index was down to 6,106 by 11.40am as a new system in China, introduced to curb volatility after last August’s Black Monday sell-off, led trading to be initially halted for 15 minutes after the stockmarket fell by 5%.

London shares tumbled on Monday as fears over Middle East tensions grew and Chinese markets plummeted.

Fiat Chrysler shares fell 2 percent by the afternoon in Milan, after trading began for its spun-off Ferrari division, while shares of the Bouygues conglomerate rose 2 percent in afternoon trading in Paris after news reports said the mobile-network operator Orange was closer to buying its telecommunications unit.

Markets were also rattled by growing tensions between Middle East powerhouses Saudi Arabia and Iran over the execution of Shia cleric Nimr al-Nimr. The Shenzhen composite plunged 8.1 percent, marking its worst day in nine years.

In Europe, markets edged lower in early trading. “As the USA enters an interest rate hike circle and China’s economic growth remains weak, capital outflows are expected to continue for a while”.

Elsewhere in Asia, Japan’s Nikkei 225 tumbled 3.1 percent, and Hong Kong’s Hang Seng retreated 2.7 percent.

Fanning the flame are rising tensions between Iran and Saudi Arabia which prompted little risk premium to oil prices on Monday. On Friday, a government survey showed a fifth month of contraction regarding larger, state-owned companies.

But economists said the new manufacturing data, while disappointing, does not indicate that China is facing a severe or unexpected economic slowdown.

Oil prices are down by two-thirds since mid-2014, with analysts estimating that producers are pumping between 0.5 million and two million barrels of oil every day in excess of demand. “I think traders will be focused on the pace of global growth, as it will doubtlessly affect the policy decisions of major central banks and the commodity sector”, said Bernard Aw, a market strategist at IG in Singapore.