Wall Street was expected to open almost 2 percent higher and Europe staged a fight-back on Wednesday, as traders tried to shake off fears about China’s slowing economy and stocks collapse that is wreaking havoc in global markets.
Europe’s main bourses, which had surged on Tuesday after China cut interest rates, clawed their way back towards positive territory having been down as much as 2 percent earlier.
China’s key share indexes had attempted to move higher several times during Asian trading only to be slapped back by waves of selling, reflecting investors’ views that much more support was needed from the government and the central bank.
Despite a late struggle, the CSI300 index closed down 0.6 percent and the Shanghai Composite Index ended off 1.3 percent for fifth straight day in the red as Beijing also dished out another round of trading bans.
Copper, often considered a proxy for Chinese and global economic activity because of its extensive use, also led another broad-based slide in industrial metals as a 2.5 percent tumble left it back near 6-year lows.
“The root of this is concern that growth in China may be a lot lower than what the market had thought,” said Michael Bolliger, head of emerging market asset allocation at UBS Wealth Management in Zurich.
“They made further announcements yesterday but the market does not appear fully convinced, it has not distracted people from the fears about the economy.”
But there was some signs of calm beginning to return. The U.S. S&P 500 was expected to see a 1.8 percent bounce when Wall Street reopens, having slumped more than 3 percent in the last hour of trading on Tuesday.
The CBOE Market Volatility Index was still elevated at 36, indicating significant uncertainty, but the “fear index” as it is known was well below the previous day’s 6-1/2 year peak of 53.3.
Currency markets also looked to be settling back into their pre-’great fall of China’ pattern.
The U.S. dollar regained traction against both the yen and euro with traders waiting on the a flurry housing market, consumption and goods data.
It was slightly off its highs of the day against the yen at 119.50 but was having plenty of success against the euro, shoving it back to $1.1414 from over $1.15 as one of the ECB’s top policymakers also lent a helping hand.
“Developments in the world economy and commodity markets have increased the downside risk in achieving the sustainable inflation path towards 2 percent,” ECB board member Peter Praet told reporters, stoking bets of more QE.
Source: The Globe and Mail