China has once again shown us why it’s the most important economy in the world.
Bad news or fears about interest rates in the US used to be able to shake the globe, now China has joined, and probably surpassed the US in importance, for the moment at least.
Inflation worries and concern about the slowing in China’s economy combined Friday to shake markets across the globe, aided by the continuing fears about Ireland’s financial health.
The deepest falls were seen in commodities with gold, oil and copper all down 3% or more in Friday’s sell-off after Shanghai’s market had its largest one drop for more than a year.
The US dollar ended firmer, especially against the euro which had its biggest weekly fall against the greenback in three months.
The Aussie dollar fell to end the week at 98.47 USc in New York trading, with parity a long way behind it after ending at 99.11 USc in Sydney on Friday afternoon and $1.0045 on Thursday afternoon.
That makes the fall around 2 USc on Friday and the largest fall for around three months.
Last week’s revelation of a sharp rise in China’s consumer price inflation (up 0.7% in October from September to an annual rate of 4.4%), didn’t rattle markets Thursday when the news was released.
But a day later, with analysts claiming to see the possibility of more tightening by the government (after last week’s surprise fourth government-directed rise in the asset reserve ratios for the country’s banks), the nerves appeared.
The fears about China and Ireland completely swamped the Group of 20 leaders meeting in South Korea.
Markets wobbled across the region (but not as much as in Hong Kong, curiously) as the Shanghai market plunged by more than 5%.
That set off a wave of selling in shares and especially commodities in European and US trading.
That fed into markets already nervous about Ireland’s financial position, although the five major economies of Europe tried to settle sentiment by telling markets Ireland would not be impacted by the new, tougher rules for sovereign debt problems ending in collapse.
But by then, the fears set off by the speculation about China has taken hold and the selling continued and gold, copper, sugar and oil led commodities lower.
European sharemarkets joined Asian bourses in ending stained with red and Wall Street saw consistent selling.
The upshot was that by the end of trading in the US, markets had retreated from two year highs set earlier in the week and the week before, gold and copper dropped sharply from all time highs and investors were left wondering if they had just seen the August rally end.
The Dow fell 91 points, or 0.8%, the S&P 500 lost 14 points, or 1.2%, and Nasdaq dropped 37 points, or 1.5%.
The steep slide came at the end of a mostly down week, with the Dow and the S&P posting losses for four out of the last five days.
All three major indexes logged their biggest weekly drops in three months: the Dow and the S&P fell 2.2%, while the Nasdaq was off 2.4%.
Gold suffered its biggest fall in four months on Friday, tumbling 3% oil prices slumped more than 3% as well (dropping from 25 month highs) and copper fell 3.3% as the speculators sold and took cover.
The cause was the 162.31 or 5.2% fall in the Shanghai market, the biggest fall since August 31, 2009 when the index dropped 6.7% and entered a bear market that lasted until July of this year.
The fall left the Shanghai market down 4.6% for the week.
The MSCI Asia Pacific Index fell 1.4% on Friday and around 1.8% for the week.
The Hang Seng in Hong Kong dropped 1.9% and Japan’s Nikkei was off 1.4% and Australia’s ASX 200 lost ground as well and had its worst week since August.
The ASX200 index was off 35.3 points, or 0.7%, on Friday at 4693.2, while the All Ordinaries index fell 31.6 points, or 0.7%, to 4778.7.
The ASX lost 2.3% for the week.
But the Japanese market rose 1% (after Friday’s sell-off).
The futures market is showing a 19 point fall for today after trading on Saturday morning.
European stocks ended mixed, with Britain’s FTSE 100 edging lower by 0.3%, while the DAX in Germany rose 0.2% and France’s CAC 40 fell 0.9%.
Over the week the Stoxx 600 Index fell 0.7%, with falls in 16 of the 18 major markets. Norway and Sweden finished higher.
But the Footsie fell 1.3%, France’s CAC dropped 2.2%, Germany’s DAX lost 0.3% and Spain’s IBEX 35 was off 1.9%. Portugal’s market lost 2% and Ireland’s exchange lost 1%.
