Stock markets continue falling in global financial panic after the ‘worst week in 4 years’
The global financial panic that saw US stocks have their ‘worst week in four years’ has continued into the new week, sending Asian stock markets lower in early Monday trading.
Losses of over 2 percent almost across Asia and declines of 4 percent have been seen on Japan’s NIKKEI and the Hang Seng in Hong Kong. China’s Shanghai Composite dropped over 8 percent and the CSI300 over 9 percent. Taiwan has seen its biggest daily losses at over 7 percent.
Financial markets have been under increased pressure in recent weeks following the suprise move by China to devalue its currency by the most on record. Monday’s losses come after last week’s declines in which all major US stock indices took heavy losses Friday to end the week. Stock markets in America had been spared the losses from uncertainty about the health of the global economy which has hit financial markets around the world.
The Dow Jones dropped 530 points on Friday alone, down over 3 percent and is officially in “correction” territory after falling more than 10% from recent highs. This is a measure which holds significant weight in terms of technical analysis at even the most tone deaf heights of the financial world.
The other major US benchmark, the S&P 500 also dropped over 3 percent and smashed through the important technical level of 2000. The S&P index is now negative on a year-over-year basis for the first time since 2012. Futures of the S&P 500 hit a low of 1913, about ’50 points from limit down’ early Monday. At those levels, the S&P is also in a 10% correction.
The S&P 500 also recently broke its post-crisis uptrend in late July.
Stock markets around the world have been hit with significant losses already, 23 countries as noted by Michael Snyder. The chart below shows major stock indices on a month-to-date basis for August with heavy losses of over 6 percent in at least 15 markets.
The crisis is accelerating, volatility has been very low in recent weeks on Wall Street, indicating very quiet markets and a lack of trading activity as many are cautious or fear unpredictable price action. This changed last week as the VIX index, used as a measure of volatility, spiked by the most ever in a week on Friday during the market chaos.
The currency war has also reached a new phase, the effects have led to losses in 20 countries already.
These are consequences of the currency war that has intensified in the last few years, marked by surprise moves like Chinese devaluation and the Swiss ending the minimum exchange rate policy in January 2015.
There are hundreds of data points that point to critical problems in the global economy, but to punctuate the situation…
1. The S&P 500 index has not only broken that long term trend from the lows of the financial crisis, but has traced a classic technical pattern which signals it has reached the top of this uptrend. It has been called the “chart of the year” and the “spookiest” of last week’s action. Repeatedly shared by J.C. Parets
2. The health of the global economy can be crudely measured based on the value of various commodities. At a macro level, it tracks the production and sale of raw materials like steel, copper, oil, and other materials needed for industrial commerce. Deflation is the mortal enemy of the fiat credit banking system and trillions of dollars of global trade lost as the price falls is a cumulative problem. The Bloomberg Commodity index is at its lowest level since 1999.
The irony is that zero interest rate policy from the Federal Reserve has largely driven activity from corporations to keep producing raw materials and selling them into an environment of declining demand leading to the downward price cycle. That, in combination with the other effects of Fed policy crushing the US and European consumer economy, has become a self-feeding cycle leading to an inevitable mathematical collapse. Some entities will be sacrificed along the way, like a bank, or a country, Greece to name one.
3. The third graphic is a generic extension of the second point. This graphic has been shared in financial circles and it points to the seven year cycle that seems to be inescapable for the global economy.