- Title: MARKETS-STOCKS/ANALYST Analysts explain sharp drop in U.S. stock market
- Date: 21st August 2015
- Summary: NEW YORK CITY, NEW YORK, UNITED STATES (AUGUST 21, 2015) (REUTERS) (SOUNDBITE) (English) NICK COLAS, CHIEF MARKET STRATEGIST FOR CONVERGEX GROUP, SAYING: "It is a combination of fundamental factors and psychological factors. We have had some tough news, the Chinese economy is probably slowing, the U.S. Federal Reserve is getting more uncertain about when to raise interest
- Embargoed: 5th September 2015 13:00
- Keywords:
- Location: China
- Country: China
- Topics: General
- Reuters ID: LVA1GEMUEOW99405YPJJJUOHZXWM
- Aspect Ratio: 16:9
- Story Text: As U.S. stock markets continued to sharply fall on Friday (August 21), heading for their worst week of the year, analysts say that multiple factors are to blame.
Globally, commodities swung lower as more data pointed to slower growth in China and sent investors scurrying to the safety of bonds and gold.
Emerging market assets took another hammering and oil prices were on track for their longest losing streak in almost 30 years after Chinese factory activity shrank at its fastest pace since the 2009 financial crisis.
"It is a combination of fundamental factors and psychological factors," Nick Cola, Chief Market Strategist of Convergex Group told Reuters.
"We have had some tough news, the Chinese economy is probably slowing, the U.S. Federal Reserve is getting more uncertain about when to raise interest rates but the market has taken it to a new level by psychologically responding to these inputs, and in fact getting quite afraid because they don't know what is next."
The Chinese factory data followed weaker-than-expected data in July, plus turbulent policy changes in the yuan and a brutal stock market plunge.
"The hard thing is it is very hard to read the Chinese economy. We don't really trust the data there, we don't know the actual growth rates are and we do know that a lot of folks bought stock in China and saw those very hard fought earnings end up being worth less as the markets fell apart. So we just don't know and the market really hates that kind of uncertainty and that is what we have," Cola added about China.
The dollar fell broadly, dropping to a two-month low against the euro, as the Chinese data eroded expectations the Federal Reserve will raise U.S. interest rates next month. The low rates may be distorting valuations and creating asset bubbles.
"The mood on the floor is, they really I think like to see the Fed raise rates in September," said Tim Anderson, Managing Director of MND Partners and a floor trader at the New York Stock Exchange.
"Frankly, I think the market really wants that first rate hike to get out of the way and then take a look at how the markets handles that two to three months down the road. Keep in mind that interest rates of 0.5 percent would be still be very, very, very low on a historical basis," he said.
Anderson also added that he was not too worried about the current selloffs.
"I think there are a lot of people on the floor that would like to see a market have a five to 10 percent correction because it is so long since there has been one. And it is almost unnatural. It can be very healthy for the market to have a correction that doesn't do long term damage to the economy."
Stocks on Wall Street and in Europe fell more than 2 percent in a global rout spurred by a 4-percent decline in Shanghai stocks. Major European indices were in correction territory, a decline of 10 percent or more from their peak. - Copyright Holder: REUTERS
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