Global markets rebounded yesterday after China’s central bank cut its key interest rate to support growth in the world’s second-largest economy. Earlier, China’s main stock index closed sharply lower for a fourth day.
US stocks rebounded sharply as investors sought out bargains a day after Wall Street turned in its worst performance in four years, but analysts stopped short of declaring that the worst was over.
“What we need to see to calm investors is positive economic data points out of China and only when we see that will the rallies be sustainable,” Xavier Smith, investment director at Centre Asset Management, told reporters.
Photo: Reuters
“Right now, it’s pretty meaningless,” he said of the Chinese interest rate cut.
All the three major Wall Street indices were up more than 2 percent, with tech stocks and banks leading the way.
For the second consecutive day, the New York Stock Exchange invoked a rarely used rule in an effort to make it easier and faster to start trading at the opening in a volatile market.
At 9:36am, the Dow Jones industrial average was up 374.74 points, or 2.36 percent, at 16,246.09, with all 30 of its components in the black.
The S&P 500 was up 42.71 points, or 2.26 percent, at 1,935.92 and the NASDAQ composite was up 131.70 points, or 2.91 percent, at 4,657.95.
European markets recovered almost all their losses from Monday, with most rising at least 4 percent.
The STOXX Europe 600 Index climbed 3.8 percent at 2:57pm in London, extending gains to 4.7 percent. Yesterday’s rebound was just as broad-based as Monday’s slump, with almost all STOXX 600 companies rising, and volume of shares changing hands about double the 30-day average.
“It’s encouraging in the sense that they’re trying to mitigate the impact of the decline,” Peter Dixon, a global economist at Commerzbank AG in London, told Bloomberg, referring to China’s move. “Investors panicked yesterday [Monday], concerned about of the lack of reaction, and this might help. Markets are beginning to realize this is a Chinese problem, not a European one. These are specific issues which refer to fundamentals in other markets and do not reflect the situation in Europe.”
Germany’s DAX rose 4.2 percent after closing on Monday in a bear market, and the UK’s FTSE 100 Index added 2.6 percent, climbing from its lowest level since 2012.
The rebound in the US and Europe came after the Shanghai Composite Index had another bad day. It lost 7.6 percent to 2,964.97 points, adding to Monday’s 8.5 percent loss and taking the benchmark to its lowest level since Dec. 15 last year.
About 2,000 stocks out of about 2,800 on the Shanghai and Shenzhen exchanges fell by the 10 percent daily limit, according to Hexun, a financial news Web site.
It was those drops that appeared to push the People’s Bank of China into action hours later.
The bank cut its interest rates for the fifth time in nine months and lowered the benchmark rate for a one-year loan and the one-year rate for deposits.
Analysts say that while the central bank’s actions may calm the stock market turmoil for now, China faces a long period of uncertainty that will create more volatility.
“The Chinese economy is going to be on this bumpy road for a while and it will have ebbs and flows that will no doubt have a serious impact on the global economy,” Warwick Business School professor Kamel Mellahi said. “What we are seeing now is a dress rehearsal of things to come.”
Other Asian stocks fell as trading volume soared and swings on the regional equity gauge broadened to the widest since March 2011.
The MSCI Asia Pacific Index lost 0.6 percent to 125.07 as of 1:49pm in London.
Trading volume was at least double the 30-day average on benchmarks in Japan, Australia and Hong Kong.
Tokyo’s Nikkei 225 closed down 4 percent after sliding 4.6 percent on Monday. However, other markets saw modest recoveries. The TAIEX rose 3.6 percent to 7,675.64, Hong Kong’s Hang Seng index added 0.7 percent, Sydney’s S&P ASX 200 gained 2.7 percent and Seoul’s KOSPI and Singapore’s Straits Times Index also rose.
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