World stock markets plunged yesterday, as a near 9% dive in China shares and a sharp drop in the dollar and major commodities sent investors rushing for the exit.
The Dow Jones fell over 1,000 points as Wall Street opened, and the benchmark Standard & Poor’s 500 index slid more than 2.5%, a drop that puts it nearly 10% below its record high.
A key measure of US equity volatility, the CBOE Volatility Index shot above the 50 mark for the first time since 2009, and the New York Stock Exchange was forced to implement special price-indication measures to allow for a more fluid start to trading.
European stocks were more than 4.7% in the red after Asian shares slumped to three-year lows as a threemonth-long rout in Chinese equities threatened to get out of hand.
Oil plunged another 4%, while safe-haven government US and German bonds, and the yen and the euro, rallied as widespread fears of a China-led global slowdown and currency war kicked in.
“It is a China-driven macro panic,” said Didier Duret, chief investment officer at ABN Amro.
“Volatility will persist until we see better data there or strong policy action through forceful monetary easing.”
Many traders hoped such support measures, which could include an interest rate cut, would have come from Beijing over the weekend after its main stock markets fell 11% last week.
With serious doubts also emerging about the likelihood of a US interest rate rise this year, the dollar slid against other major currencies.
The Australian dollar fell to six-year lows and many emerging market currencies also plunged, while the frantic dash to safety pushed the euro to a six and a half-month high above $1.15.
The euro briefly shot to $1.17.
“Things are starting to look like the Asian financial crisis in the late 1990s.
Speculators are selling assets that seem the most vulnerable,” said Takako Masai, head of research at Shinsei Bank in Tokyo.
As commodity markets took a fresh battering, Brent and US crude oil futures hit six-and-a-half-year lows as concerns about a global supply glut added to worries over potentially weaker demand from the normally resource-hungry China.
The near 9% slump in Chinese stocks was their worst performance since the depths of the global financial crisis in 2007 and wiped out what was left of the 2015 gains, which in June has been more than 50%.
With the latest slide rooted in disappointment that Beijing did not announce expected policy support over the weekend, all index futures contracts fell by their 10% daily limit.
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