With a just over a half hour left in trading the TSX was down 118 points. The Dow Jones was down more than 400 points. The S&P was down 44 and the NASDAQ 135. Before the suspension of trading the Shanghai Composite index was down 6.9 percent at 3,296, the lowest level in three months. Weak manufacturing data sparked the sell off. The automatically triggered suspension of trading can last from about 15 minutes up to more than a day. New York and Toronto exchanges have similar devices. A seven percent decline in either of these markets would see a 15-minute shutdown but if after that the decline reached 20 percent, trading would be shut down for the entire day. This is the first time that China has used the “breaker mechanism.”
European markets also had a dismal showing: In European trading, Britain’s FTSE 100 slipped 1.9 per cent to 6,123.91 and Germany’s DAX tumbled 3.3 per cent to 10,389.11. France’s CAC 40 slumped 2.1 per cent to 4,537.70. Futures augured losses on Wall Street. Dow futures fell 1.5 per cent and S&P 500 futures dropped 1.3 per cent.
Tension in the Middle East between Iran and Saudi Arabia also had an unsettling effect on markets.
Huang Cengdong, a Shanghai security analyst, said that selling accelerated as stocks sank towards the level where trading would be halted. He expects the selloff will continue prior to coming earnings reports. Huang said: “The market will not improve because there will be heavy selling in the near future.” An index of Chinese manufacturing fell to 48.2 in December from 48.6 in November. The index has declined for 10 months in a row. The decline in Chinese manufacturing will result in lower demand for imported resources used in the sector. While oil prices at first rose due to conflict in the middle east, it soon lost all its gains and actually declined slightly later in the day.
According to Bloomberg, the Dow Jones index was falling towards its worst start since 1932. Bonds have rallied as there is more demand for safe assets. Gold was up as well. The loonie suffered a marginal decline and was below 72 cents U.S.
Michael O’Rourke, of Jones Trading Institutional Services said:“We’ve had a number of negatives out there in the U.S. throughout most of last year as investors battled to have a flat year and China is a reminder that there aren’t many things to be bullish about going into this year.” As well as the weak data from China, US manufacturing is also contracting. Volatility indices both in North America and Europe were up. Patrick Spencer, vice chair of Rober W. Baird and Co. of London said: “It’s never good to come in on the first day of proper trading to see this happening. Volatility will continue to dominate the market this year. There’s short-term escalating concern in the Middle East and the Chinese manufacturing data is also is worrying markets.”
