World Economy

Panic Grips Global Markets

Panic Grips Global MarketsPanic Grips Global Markets

The FTSE 100 capped off a “frightful fortnight” which has seen more than £135 billion ($212 billion) wiped off from the index as investors were rocked by renewed fears of China’s economic hard-landing.

Britain’s benchmark index closed down 2.83% at 6,187 on Friday, ending a ninth consecutive day of falls which has led its descent into official “correction” territory. The index has now fallen by more than 13% since hitting a high of 7,104 in April, NewsNow reported.

The panicked sell-off was sparked by another round of disappointing data from China, where factory output contracted at its fastest pace since the height of the global financial crisis in 2009.

The latest wave of flagging growth indicators is set to force Beijing into drastic action to revive its fortunes, two weeks after authorities stunned markets by weakening the renminbi and setting off an August market rout.

There is now a “high probability” that the Chinese central bank will move to slash the country’s main lending rate, said analysts at Societe Generale.

  Stock Market Thrall

“It’s been a frightful fortnight for the Footsie,” said Laith Khalaf at Hargreaves Lansdown.

“The sell-off may yet have further to run, particularly seeing as such a large part of the UK stock market is in thrall to capricious commodity prices”.

Panic selling also hit US stocks, where the S&P500 fell below the 2000 mark for the first time since January, putting equities on course for their worst week of trading since 2011. The benchmark index closed the day down 3.2% at 1,970.97 as soft manufacturing data from the US added to global growth woes.

Broader European markets also suffered their worst week of the year. The pan-European FTSEurofirst 300 capped off a torrid five days, falling by more than 5.6%. Germany’s DAX was down by 3% on Friday, while France’s CAC40 declined 3.2%.

Europe’s indices were driven lower on a resumption of Greece’s woes after prime minister Alexis Tsipras resigned from office, calling snap elections for September 20.

After five years of international bail-outs, Greece has undergone the most severe depression of any developed economy in the modern era.

“We won’t accept being in the eurozone and having bail-out programs imposed on us,” said the firebrand Marxist mathematician.

 Yuan’s Devaluation

Since the devaluation, China has moved to keep the renminbi from depreciating further by selling dollars. This effectively takes money out of the financial system, so the central bank has been busy this week trying to add liquidity.

On Wednesday, it announced 110 billion renminbi ($17 billion) in new six-month loans to 14 unnamed financial institutions.

These measures have not been enough, as China’s overnight money market rates have continued to inch upward. Many analysts now think the central bank must respond more aggressively.

The main Shanghai index fell 4.3%, while the Shenzhen index closed 5.4% lower. Hong Kong’s Hang Seng index declined 1.5% after having given up all its gains for the year this week. The Nikkei 225 in Tokyo closed down 3%.

Much, of course, depends on the strength of the Chinese economy—and an economic release on Friday could stoke further pessimism. Output in China’s manufacturing industry contracted in the first three weeks of August at the fastest pace since the depths of the financial crisis, according to a preliminary reading of the Caixin purchasing managers’ index. It came in at 47.1 points for August, compared with 47.8 points in July. The August figure was its lowest reading since March 2009 on a scale in which any figure below 50 indicates contraction.