Market panic grips US, Europe as China weakens on first trading day

Fears of a Chinese crash landing and the ineffectiveness of current monetary policy under Li Keqiang’s new policy suite sent stock markets diving across the globe on Monday on the first day of trading of 2016. Concerns ultimately caused by poor data on Chinese manufacturing and factory utilisation in the People’s Republic spurred some 8 per cent losses on composite markets in Shanghai and Shenzhen — some of the crashes were so bad on local markets, that for the first time ever, a trading halt was declared for 15 minutes on Monday afternoon, a new circuit breaker measure installed last year when losses were severe and sustained across Asian markets.

As European and US markets opened hours after the close of Asian markets, the Dow plunged 400 points, the S&P losing over 2%, dropping below 2000 and the Nasdaq shedding 3% with technology firms like Netflix and Apple sustaining heavy losses.

“The first session of 2016 yields a bloodbath stretching from Asia to Europe to New York,” Bespoke Investment Group wrote in a client note. These sentiments echoed by 3% losses on JP and Goldman shares on the NYSE.

The benchmark Shanghai Composite index dropped nearly 8 percent and the Shenzhen Composite suffering similar losses affecting many tech companies.

Many experts claim that this weak manufacturing data is one of the most indicative signs of a slowdown and ultimate economic transition in China as demand patterns and revenue streams shift as the middle class continues to grow.

American manufacturing data was also pretty troubling, with construction spending down 0.4 per cent. The ISM manufacturing index fell to 48.2 in December, revised down from a projected 48.6 — this being the lowest ISM index score since June of 2009 at the very end of the GFC. The strong US dollar is partly to blame, making American exports less competitive to overseas buyers.

Other global markets are also seeing nerves and tension over the diplomatic strains between Iran and Saudi Arabia. Crude oil indexes are up some 3 per cent with Saudi Arabia cutting diplomatic ties with Iran following a Tehran embassy attack.

The rough start to 2016 could be a bad omen for Wall Street, which has an old saying: “As January goes, so goes the year.”

Jackson Barton — Business Editor