Global equities slumped on Monday as concerns grow on the strength of China’s economy and the ongoing stock market sell-off in China causes alarm in world markets. European markets closed down by around 5% on Monday but US equities staged a late rally to recoup earlier heavy losses.
The Dow Jones Industrials had dropped by 1,000 points soon after trading opened but cut its losses to 588 points to close 3.6% lower. The S&P 500 also moved higher from the lows at the start of trading to close 3.9% lower.
In Asia, shares were mixed as some markets such as Sydney and Seoul were up sharply in Tuesday’s Asian trading, but Tokyo gave up earlier gains to close 4% lower. Chinese stocks continued to head lower with shares down by around 7% in late Asian session.
Oil prices attempted a small rebound to move away from yesterday’s 6 ½-year lows. WTI crude futures was up 1.1% at $38.65, while Brent crude was up 0.6% at $42.96. The Canadian dollar fell to an 11-year low of 1.3297 against the greenback on the latest oil price slump.
The Australian dollar was off Monday’s 6-year lows after it briefly plummeted to 0.7033 against the US dollar. It was up at 0.7181 in late Asian session. The kiwi saw an even bigger drop when it plunged to 0.6140 from around 0.6560 but has since stabilised to trade at 0.6483.
The US dollar was slightly firmer on Tuesday after the latest equity rout in global markets drove down expectations of a September rate hike. But comments yesterday from Atlanta Fed President Dennis Lockhart that he expects ‘the normalization of interest rates to begin sometime this year’ gave some support to the US currency. The greenback was struggling to climb back above the 120 level against the yen in late Asian session following yesterday’s steep fall to a low of 116.14. It was last trading at 119.15. Cable managed to hold on to the 1.57 handle, and was last trading at 1.5771.
The euro eased from Monday’s 7-month high of 1.1713 against the dollar to trade at 1.1565 in Tuesday’s Asian session. German GDP data had little impact as final second quarter growth figures came within forecasts of 0.4% quarter-on-quarter. Growth was led by a strong performance in exports, but a longer-term slowdown in China poses potential risks to German exporters. The euro also saw strong gains against the pound, hitting a high of 0.7422 on Monday, but easing to 0.7323 on Tuesday.
Looking ahead to the rest of the day, German IFO Business Climate figures should give an indication to the state of business sentiment in August. In the US, Services PMI and the Conference Board Consumer Confidence data for August will be important to watch, as well as new home sales figures for July.