China Worries Send US Stocks Tumbling

Weak manufacturing data was behind the sell-off on Monday along with Middle East tensions, which pushed up oil prices.

As trading was suspended, the benchmark Shanghai Composite Index had tumbled 4.96 per cent, or 175.66 points, to 3,363.52.

On Wall Street, all 10 major S&P sectors were lower, led by the 2.4 percent fall in the technology sector.

Monday’s massive losses show they might not be enough to rescue its stock market from another tumultuous year, according to Gu Yongtao, a strategist at Cinda Securities.

What a depressing way to start the year.

A weaker-than-expected reading on Chinese manufacturing that showed continued contraction in one of the world’s most important economies raised fresh fears about the global growth outlook for 2016 and the profit outlook for companies around the globe.

The official Xinhua News Agency said China halted trading on the Shanghai and Shenzhen stock markets after shares tumbled.

Worse still, the reverberations are being felt around the globe, with the Dow plunging 400 points (about 2.3%) in early trading and the Nasdaq and S&P posting similar declines. The drop in the CSI300 index, which covers both bourses, for the first time triggered an automatic early closure under the new system, after an initial 15-minute trading halt failed to stem the declines. As well as the weak data from China, US manufacturing is also contracting. An index of US factory activity fell to 48.2 from 48.6, the Institute for Supply Management said Monday. With the loss, the index fell to its lowest closing level in four months.

Escalating tensions in the Middle East, sparked by Saudi Arabia’s execution of a prominent Shia cleric over the weekend, also led to a jump in oil and gold prices.

Oil firms were also lower in the wake of Saudi Arabia cutting diplomatic ties with Iran, two of the world’s biggest oil producers.

Stocks around the globe got clobbered.

South Korea’s Kospi was up 0.7 percent to 1,932.45 and Hong Kong’s Hang Seng gained 0.2 percent to 21,371.44. Japan’s Nikkei 225 lost 3.1%. The CAC 40 in Paris was off 2.5% and the broad Stoxx Europe 600 was 2.5% lower. Shanghai stocks once again could become a risk factor for the global financial market.

The trading halt mechanism – dubbed a “circuit breaker” – went into force on Monday, the first trading day of 2016. The session ended about an hour and a half early in accordance with regulations debuting just that day, after the index dipped by over 7% at 1:33 p.m.

“The pressure will continue to weigh on the market in the following days”.

The West Texas Intermediate for February delivery moved down 28 cents to settle at 36.76 US dollars a barrel on the New York Mercantile Exchange, while Brent crude for February delivery decreased 6 cents to close at 37.22 dollars a barrel on the London ICE Futures Exchange.

The growing pains were evident in the summer, when Beijing’s leaders began loosening their grip on the Chinese currency – a key sign of a developed nation that was long advocated by the USA and other countries.