Global equity markets tumbled on the start of a new trading week, spurred by a combination of factors led by concern over the extent of the Chinese slowdown.
After weeks of freezing stocks, limiting short-sellers and devaluing the yuan, the People’s Bank of China (PBoC) stood pat overnight as the Shanghai Composite Index fell over eight percent.
The Chinese contagion leaked into the eurozone before preceding to sink the Dow Jones industrial average by over a 1,000 points on the opening bell.
US equities have recovered slightly – the S&P and DJ were last down three percent and 2.9 percent respectively – but the dollar remains weak at $1.1583 against the euro, down 1.7 percent.
“This morning the fight is for survival; the fight is for the retention of or the getting of liquidity; the fight is simply the fight to stay fiscally alive and well,” Dennis Gartman, editor and publisher of The Gartman Letter, said in his daily newsletter. “All other concerns are truly secondary.”
Even gold prices are lower for the day at $1,158 per ounce with Gartman citing “unreasonable” levels of panic and margin clerks seeking liquidity as the impetus for lower precious metal’s prices.
“This panic is palpable, real and extending, and the margin clerks around the world have no choice but to pay heed and act accordingly,” Gartman said.
The solution? A call for cheaper forms of credit; ala a fourth round of quantitative easing, according to Gartman. After the Federal Reserve’s taper-talk of 2013, the organization has been paring asset purchasing and are in the process of raising interest rates.
In July, Fed chairwoman Janet Yellen expressed a desire to raise interest rates in 2015. Rates have been near zero levels since December 2008 in response to the credit crisis of 2008/2009.
“At this point, perhaps, the Fed should reconsider returning to QE,” he said.
The CME Group FedWatch – a tool used to gauge the market’s expectation of a Fed Funds rate adjustment – currently predicts a 24 percent probability of a rate hike in September.
Earlier in the day, the number stood at 28 percent and was near 50 percent earlier in the month.
(Editing by Tom Jennemann)
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