Stocks posted sharp losses as China’s equity market woes continued with a sustained spillover effect into the global markets. Today’s sell-off catalyst was currency—specifically, traders’ reaction to Beijing’s continued efforts to depreciate the yuan. The Chinese yuan weakened to a five-year low after the People’s Bank of China cut the currency’s reference rate for the eighth-straight day and by the most since August. The central bank also said that China’s foreign exchange reserves shrank more than forecast in December by a record $108 billion.
Anxiety over the yuan quickly spilled over into the equity markets. Days after introducing a circuit-breaker mechanism to curb sell-offs, China’s securities regulator suspended it. The reason: Within just 30 minutes of today’s market open, China’s CSI 300 Index tumbled 7.2%, triggering an automatic trading shutdown for the entire day. This marks this week’s second shutdown amidst growing discord from analysts who blame the circuit breakers for intensifying losses, as investors rush to the exits before getting locked into positions.
For more insight on China’s market sell-off—and how it relates to U.S. investors—read Dr. Brian Jacobsen’s new post on the AdvantageVoice blog.
Here in the U.S., the Dow dropped 392 points, with all but 1 of its 30 components retreating; the S&P 500 Index lost 47 points; and the Nasdaq sank 146 points. Decliners topped advancers by about seven to one on the NYSE and the Nasdaq. The prices of Treasuries strengthened. Gold futures climbed $15.90 to close at $1,107.80 an ounce. The price of crude oil slipped 70 cents, settling at $33.27 a barrel, weighed by concerns over demand from China, the world’s second-largest oil consumer.
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