US stocks initially posted their sharpest rally of the year in Tuesday morning trading after investors looked for bargains a day after Wall Street’s worst performance in four years.
The Nikkei briefly slipped back into negative territory, however, after China’s benchmark Shanghai Composite Index – ground zero for this week’s market meltdown – faltered yet again.
While U.S. stocks appeared relatively cheap to some investors, others were waiting for positive economic data from China, said Xavier Smith, investment director at Centre Asset Management.
How will the Chinese markets react and will the People’s Bank of China, their version of the Federal Reserve, make any moves to cushion the blows that market has felt? While Chinese equity-index futures surged, with contracts on the FTSE China A50 Index jumping 4.9 percent, exchange-traded funds tracking the nation’s shares nearly erased rallies in New York.
Investors snapped up beaten-down stocks from the opening bell but caution set in by early afternoon amid lingering concerns that a slowdown in China could hobble global growth.
Tokyo stocks had opened higher amid guarded optimism over the Chinese central bank’s decision to cut interest rates for the fifth time in nine months.
Crude oil and metals markets also responded to Beijing’s move as China one of the world’s biggest commodities consumers.
U.S. stocks are sharply higher in midday trading after China’s central bank cut its key interest rate in a bid to boost growth in the world’s second-largest economy.
The market sell-off seemed like a “a correction” that happens occasionally, Ron Kruszewski, chairman of Stifel Financial Corp., told the St. Louis Business Journal on Monday, saying the “recalibration” was caused by worries about China’s markets and whether the Fed would raise interest rates. Germany’s DAX jumped 5 percent, while France’s CAC-40 rose 4.1 percent. Hong Kong’s Hang Seng index rose 0.7 percent, while Sydney’s S&P ASX 200 gained 2.7 percent. The Shanghai stock index slumped to close 7.6 percent lower – adding to Monday’s 8.5-percent loss and taking the benchmark to its lowest level since December 15. The PBOC called it a free-market reform but some saw it as the start of a long-term yuan depreciation to spur exports. Wall Street is in the seventh year of a bull market and has continued to grow over time despite several corrections when share prices have briefly declined.
Banks were also freed to lend more money after the PBOC scaled down the amount of cash they are compelled to hold in reserve from 18.5 percent to 18 percent.
After 10 minutes of trading, the TSX/S&P composite index was up 314.72, a gain of 2.41 per cent from Monday’s close with all major subindexes advancing.
A dramatic devaluation of the currency a fortnight ago, coming on top of the summer’s bungled stock market rescue, has left Beijing looking uncertain and accident prone.
Oil prices steadied, with Brent crude 1.2 per cent higher at $US43.21 a barrel.