China Cracks Again

A drop in the Chinese currency sparks a new wave of selling.

 
 

The markets are having a déjà vu experience. Actually it’s more of a case of déjà August.

Last August, a sell-off in the Chinese market roiled global markets.

Today, Dow futures were down 350 points in pre-opening trading after another meltdown in the Chinese market. The Chinese market plunged by more than 7% before circuit breakers closed the market. It was a short day for Chinese traders — the market was open only 29 minutes.

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Analysts are blaming this week’s China meltdown on new rules that make it harder for investors to sell. Apparently, this has encouraged some investors to sell anytime they get a chance. Then China allowed another big drop in its currency, which sparked a new wave of selling.

If this is déjà August, the selling will eventually subside and the Chinese market will recover and the global markets will rally back. However, some analysts see this is the beginning of something bigger in China, the long-awaited collapse of the Chinese miracle.

No one knows how this will play out, but the longer it goes on, the lower the odds the Fed will be tightening anytime in the near future.

Read more about oil prices, the bond rally, and positive economic data.

Dwight Johnston is the chief economist of the California and Nevada Credit Union Leagues and president of Dwight Johnston Economics. He is the author of a popular commentary site and is a frequent speaker at credit union board planning sessions and industry conferences.

 
 

Jan. 7, 2016


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