05162022

US shares end choppy day with big jump

European trader

Shares on Wall Street finished with their biggest rise in four years ending another rocky day of trading on global markets.

The mood was lifted by comments from US Federal Reserve official William Dudley that a rate rise in September seemed “less compelling”.

The Dow Jones closed up 3.97% at 16,285.64.

Earlier, European stock markets lost ground again as fears persist of a China-led economic downturn.

London’s FTSE 100 closed down by 1.7% , with markets in Paris and Frankfurt finishing down by 1.4% and 1.3% respectively.

Earlier on Wednesday, economic figures seemed to back the case for a rise in US interest rates at the Fed policy meeting on September 16-17.

Durable goods orders rose 2% in July, compared with forecasts of a 4% fall. Orders for core capital goods rose 2.2%, the biggest gain in 13 months.

But analysts say there still likely to be more market volatility until the Federal Reserve meets next month.

“Until we get September out of the way, I think markets will continue to be choppy,” said Michael Hewson, chief market analyst at CMC Markets.

“These are the sorts of swings that we last saw in 2008,” he added.

With the wild movements in global markets, Mr Hewson said he did not expect a rate rise out of the US next month, in part because of the central bank’s mandate to maintain financial stability.

“I think they would be absolutely bonkers to raise rates now,” he said.


China’s economic slowdown

282%

China’s debt to GDP ratio

$28 trillion

Debt has quadrupled since 2007

  • 0.25% cut in key lending rate

  • 5th interest rate cut since November

  • 7% China’s growth target for 2015

China contagion

On Tuesday, China’s central bank cut its key lending rate by 0.25 percentage points to 4.6% in a bid to calm stock markets after the past days’ turmoil.

The dramatic losses and volatility in China have shattered investor confidence and led to sharp falls in Asia and the US over the past several sessions.

The interest rate cut was the fifth by the People’s Bank of China since November last year.

The move is aimed at boosting China’s growth long-term, rather than having an immediate impact on investors.

Given China’s central role in world trade, a slowdown in the world’s second-largest economy would be likely to reverberate around the globe.

A rate cut will make it cheaper for banks to borrow from the central bank and will in turn make it easier for businesses and private people to borrow money from those banks.

On Wednesday, the Shanghai index fell 1.27% to 2,927.29, after veering in and out of negative territory.


Analysis: Robert Peston, BBC business editor

In some ways I thought yesterday’s events on markets were if anything more disturbing than Monday’s global rout.

Because if share-price gains could not hold after the significant monetary easing by China’s central bank, then mistrust about the true state of the world’s second largest economy (actually the number-one economy on the purchasing-power-parity measure of GDP) has become very pronounced indeed.

And another thing, the Chinese interest rate cuts will exacerbate the phenomenon that has caused so much stress in so many different global markets, from commodities, to foreign exchange, to stocks and bond – the fall in the Chinese currency, the RMB, since it was allowed by Beijing to float more freely on 11 August.

Read more from our experts:

Robert Peston: China’s woes and a still flawed global economy

Duncan Weldon: What next for the global economy after China market woes?

Andrew Walker: How the China share slump affects the rest of the world

Karishma Vaswani: China counts cost of Black Monday


Read more: The six Cs of the China stock slump

The stocks fall in facial expressions

Optimism elsewhere

Elsewhere in Asia, the region’s largest index, Japan’s Nikkei 225 finished 3.2% higher on Wednesday at 18,376.83 points.

The Nikkei’s gains come after a painful week for the Tokyo index, which had shed more than 8% in the past two sessions.

South Korea’s Kospi index was also in positive territory, closing 2.6% higher at 1,894.29 points, while in Australia, the S&P/ASX 200 finished 0.7% up at 5,172.80.

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