China suspends ‘circuit breaker’ mechanism after stock trading halted again

The renewed share suspension in China caused global shares to fall sharply on Thursday, with Wall Street opening more than 1% lower and European markets trading 2% down. “If contagion sets in, there will be more days throughout the year where trading is halted on the Chinese stock exchanges”, US-based Mr Petrides said.

Other global markets also declined.

The turmoil in China triggered a sell-off in Asian and Western stocks.

By the end of trading Thursday, Hong Kong had slumped more than three percent and Tokyo shed 2.

Equally, dealers are uncertain how Chinese equity investors will react to the abolition of the circuit breaker.

China announced Thursday night that it will from January 8th suspend the stock market circuit breaker mechanism that has been implemented since the beginning of this year.

Thursday’s drop pushed the tech-heavy Nasdaq composite index into what market watchers call a “correction”, or a drop of 10 percent from a recent peak.

But when trading resumed after the initial halt on Thursday, it took only one minute for the 7% threshold to be reached, prompting a shutdown for the rest of the day.

About 35 minutes into trade, the Dow Jones Industrial Average stood at 16,677. I expect a roughly 6% gain by the S&P 500 this year.

While plunging Chinese share values harm sentiment, Lawler said “the bigger source of uncertainty for Europe is over the People’s Bank of China’s continued devaluation of the yuan”.

China limits the yuan to rising or falling two percent on either side of the reference rate. They’re created to provide a timeout, giving investors a chance to calm down.

“Thus, the China Securities Regulatory Commission (CSRC) decides to suspend the circuit breaker mechanism to maintain market stability”, CSRC spokesman Deng Ke said in a statement.

China’s regulator later suspended the mechanism, brought in to reduce trading volatility, after judging it was doing more harm than good. An ill-thought-out “circuit breaker” trading halt system, which kicked in twice this week, also added to volatility. The price of US crude oil plunged to its lowest level since 2004 as traders anxious that weakness in China would translate into lower global demand for energy.

The euro rose to $1.0927 from $1.0788.

Separately, Peter Kenny, an independent market strategist wrote in a note to investors that the movements of the markets have been extreme.

British finance minister George Osborne warned the economy faces a “dangerous cocktail of new threats” in 2016. The decision came hours after CSRC officials held an emergency meeting to discuss conditions on the nation’s tumbling stock market, according to a person familiar with the discussions who asked not to be named because he wasn’t authorised to speak publicly.