U.S. equities closed sharply lower for the third time this week following heavy losses overnight in the main Chinese exchanges that caused the government to shut the Shanghai and Shenzhen markets just 29 minutes after they had opened.
The Dow Jones Industrial average closed down 2.32 percent on Thursday, 392.41 points in the red at 16.514.10, having earlier posted a loss of 442.88 points. The index has lost 5.2 percent this year and is more than 10 percent below its 52-week high, into correction territory. The Nasdaq closed down 3.03 percent, off 6.35 percent in 2016's four trading days, and the S&P 500 tumbled 2.37 percent leaving it 4.93 percent lower on the year and 9 percent from its 52-week top.
China's continuing devaluation of the Yuan in Asian trading set the stage for global equity losses as markets fear that the economic situation on the mainland is far more serious than admitted by the government or portrayed in official statistics.
The so-called 'on-shore Yuan' traded in Shanghai, lost 0.56 percent against the dollar and is down 1.3 percent this week and 6.2 percent since Beijing surprise devaluation on August 11th. The 'off-shore Yuan', traded in Hong Kong, moved as low as 6.7618 versus the dollar, its weakest in five years. Since the start of the August 11th slide it has plunged 7.7 percent.
Stocks losses accelerated in late afternoon action as Reuters reported that the People's Bank of China is under pressure from trade officials and other parts of the Chinese government to permit a rapid devaluation of the Yuan, by as much as 10-15 percent, which, if taking the summer's starting point, would mean that the Yuan could fall as much as another 5-10 percent.
The China Regulatory Securities Commission announced that it had suspended its recently implemented circuit breaker rule on trading. A 7.04 percent collapse in the Shanghai Composite and a 6.93 percent drop in the Shenzhen CSI 300 had forced the shuttering of both exchanged for the second time this week on Thursday.
The U.S. Dollar gave ground against the euro and yen as traders continued their choice of the Japanese currency as the favorite safe-harbor against China fostered turmoil though markets favored the euro as well for the first time this week.
The yen closed at 117.67 to the dollar, up almost a figure from its 118.47 open and 2.2 percent higher so far this year. It was the strongest close for the yen in just over two years.
The dollar reversed its safety status from earlier in the week as the euro climbed as high as 1.0940 in New York from a low of 1.0771, closing at 1.0731. On Tuesday the greenback had traded as high as 1.0710 against the euro, its best level since December 3rd.
Commodities responded to the anticipation of further slackening of demand from China. At the bottom, West Texas Intermediate, the U.S. crude standard had sunk more than 3 percent to $32.10, a twelve year low, as was its close at $33.27. Brent, the European and global standard, also dipped below $33 a barrel, close to a12-year low. Copper fell more than 3.5 percent in intraday trading to hit its lowest price since November 2015. The Bloomberg Commodity Index touched 75.7032, and closed at 76.6828, its weakest prices since February 1999.
Chief Market Strategist
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