NEW YORK – For most of the day Tuesday, nervous investors got a breather as the Dow rallied on the market opening, up 392 points. But by the last hour of the roller-coaster trading day, U.S. stocks plunged again, obliterating the day-long rally and putting investors on edge again over worries about a market meltdown.
The Dow closed Tuesday with a loss of 205 points.
It’s on pace for its worst month since February 2009, after losing 1,000 points last week, topped off by another loss of 588 points Monday. The Dow has lost a total of nearly 1,900 points, or 11 percent.
Meanwhile, the steep selloff in China continues, with the stock market crash there wiping out more than $1 trillion in value from equities as the Shanghai exchange lost 22 percent over just the past four days.
On Tuesday in Asia, the Shanghai Composite Index closed down 7.6 percent, closing below 3,000 for the first time since December 2014.
China pulls out all stops
Since last week, the Chinese government has devised a wide range of market interventions to halt what appears to be a continuing and possibly even accelerating selloff of Chinese stocks.
On Monday, China’s central bank cut interest rates by a quarter of a point in a move widely interpreted at reassuring investors that Beijing is willing to take any measures necessary to boost the slowing growth of the Chinese economy.
The People’s Bank of China also reduced the reserve requirements by half a percentage point, making it easier for banks in China to lend to corporate borrowers in a move the Wall Street Journal reported effectively added 678 billion yuan (approximately $105.7 billion) to the Chinese economy.
Bloomberg Business reported the Chinese stock market plunge continuing into Tuesday has extended its biggest decline since 1996.
The steps taken by the Chinese government to prop up its economy buoyed investors in Europe as the Stoxx Europe 600 Index climbed 4.3 percent at 4:32 p.m. in London. The rebound came after the worst day in European stock markets since 2008.
The current global stock selloff was precipitated by a surprise decision announced by China two weeks ago to devalue its currency. The aim was to boost exports and jump-start sluggish growth in the world’s second-largest economy. It caused Aug. 11 the biggest one-day loss recorded by the Chinese stock market in the past two decades.
The underlying issue rattling global markets is the growing realization that the “economic miracle,” with China registering annual growth rates of 10 percent or higher for more than three decades, may have peaked. While it has overtaken Japan as the world’s second largest economy, behind the United States, China’s growth has slowed dramatically.
Further, China’s devaluation of the yuan to make its exports more attractively priced to buyers in world markets appears to many investors as yet another example of its tendency to manipulate currency.
When will U.S. interest rates rise?
On Tuesday, the New York Times cautioned investors that their assumption that the Federal Reserve will not raise interest rates this year might be premature. The Fed’s policy-making committee doesn’t meet until mid-September, and it has two more meetings scheduled later this year, in October and December, the Times noted.
WND has reported for nearly two years that the Fed, unable to sustain a policy of “quantitative easing” under which it purchased trillions of dollars of Treasury-issued debt, is running out of options to help stimulate economic growth or to reverse a sharp market selloff in the short term.
Under the leadership of Federal Reserve Chairwoman Janet Yellen, the Fed has engaged in a “pivot,” shifting concern from stimulating job growth to worrying about inflation. The fear is that without a tightening in Fed monetary policy, the U.S. economy could experience inflation as high as 5 percent in the next two years, a level not experienced since 2005.
In October 2014, the Fed under Yellen’s direction ended the policy of Quantitative Easing in which for 37 consecutive months it had bought Treasury debt in an effort to stimulate the economy by keeping interest rates at or near zero.
Under the QE bond-buying spree, the Fed’s balance sheet ballooned to a record $4.48 trillion accumulated since announcing the first round of QE purchases in November 2008.
Yellen assumed the Fed chair on Jan. 6, 2014, determined to “taper” QE borrowing down to zero by the end of 2014, a goal she achieved in October.
