The Latestþþ■ At Wall Street’s open, stocks in the United States surged, with the Standard & Poor’s 500-stock index and the Dow Jones industrial average gaining more than 2 percent.þþ■ Shanghai stocks swung between big losses and gains on Wednesday, closing down 1.3 percent despite the rate cuts in China.þþ■ The markets were mixed across the rest of Asia, with Japan and South Korea rebounding strongly.þþ■ Markets in Europe opened with major indexes showing losses of 1 percent to 2 percent, but they pared back some of the losses by the afternoon.þþIn DepthþþThe storm that has been tearing through global stock markets for several days appeared to have abated on Wednesday.þþChinese stocks closed down slightly and European stocks were also lower, but United States stock markets opened sharply higher.þþWith investors still confused and concerned about China’s economy, the second-largest in the world after the United States’, the apparent lull may not last. And a resurgence of selling could heighten fears that volatility in financial markets will damp economic recoveries that have been taken foot in Europe and gained steam in the United States.þþMore often than not, though, stock market slides do little collateral damage.þþStock market corrections – the Wall Street term for a decline of at least 10 percent – come and go, usually with little consequence. And, importantly, they need not signal tough economic times ahead.þþ“Corrections are generally three times as frequent as recessions,” said David Bianco, a strategist at Deutsche Bank in New York, said in an email, referring to the period since 1960. “This time I think the cause isn’t about U.S. recession risk.”þþThe debate over the consequences of the stock market sell-offs will only intensify as central bankers meet in the coming weeks to decide whether to adjust monetary policy, one of the main drivers of economic activity. William C. Dudley, the president of the Federal Reserve Bank of New York, and an influential policy maker within the Fed, was scheduled to hold a press briefing on Wednesday morning.þþThe Standard & Poor’s 500-stock index, a broad measure of the United States market, was up 40 points, or 2.2 percent on Wednesday. The much narrower Dow Jones industrial average was up 338 points, or 2.2 percent. Investors sold the 10-year Treasury note, a safe-haven investment in volatile times. Its yield, which moves in the opposite direction to its price, rose to 2.15 percent, from 2.08 percent on Tuesday.þþThe recent wave of selling was set off in part by China’s surprise devaluation of its currency, the renminbi, on Aug. 11.þþOn Wednesday, shares in Shanghai on Wednesday swung between sharp gains and losses, before ending the day down 1.3 percent, and they showed no sign that China’s cut in interest rates late Tuesday would lead to a broader rally.þþOfficials in Beijing took new steps on Wednesday to bring the stock market to heel, saying that they were investigating executives from China’s biggest brokerage firm and had arrested staff members from the country’s stock regulatory agency.þþAround Asia, other markets were mixed on Wednesday. Stocks in Japan rebounded 3.2 percent, ending a six-day losing streak.þþEuropean stocks, which had been up sharply on Tuesday, began trading on Wednesday with declines of 1 percent to 2 percent. But by the afternoon, they had made up some of that ground. It was hard to tell how much of that activity might simply be a function of market volatility or an affect of the downward lead of American markets on Tuesday, and how much might reflect actual concerns about some European companies’ dependence on China.þþIn the coming weeks, economists will be poring over data to assess whether the tumult in financial markets is weighing on investment decisions and consumer spending. The sell-off has wiped more than $1 trillion of value off the S.&P. 500, depleting household’s nest eggs and perhaps delaying some spending. And the weakness in stock markets could be a drag on corporations. The recent wave of mergers and acquisitions, for instance, may lose some steam.þþStill, steep stock market declines often have little long-term effect on the wider economy. The last time the stock market declined by more than 10 percent was in 2011. But the United States economy has mostly grown steadily since then. Instead, stock market corrections can be relatively isolated events that are driven more by stock valuations than fears about the economy.þþMr. Bianco noted that the profits of companies in the S.&P. 500 had been flat for two quarters and are likely to remain sluggish for a while. “I believe that is the cause of the correction,” he said.þþChina remains a big question mark. Deeper economic woes in China would have a global impact — on American companies like General Motors and Yum Brands, which count China’s rising middle class among their biggest customers; on Australian iron ore exporters and Peruvian copper miners; and on Japanese industrial robot manufacturers and French luxury goods retailers.þþSince China’s stock market started cratering in June, after a rally that more than doubled share values in a year, the country’s leaders have been scrambling to prop up the markets. And yet, shares in Shanghai and Shenzhen have continued to plunge. Officials now appear to be tacitly acknowledging the failure of their attempts to rescue shares.þþLi Kui-Wai, an associate professor of economics and finance at the City University of Hong Kong, said such measures amounted to “financial socialism.”þþ“Basically they just try to bail out everything,” Mr. Li said on Wednesday. “The market is unsure about what China can do or will do, other than interfering in it,” he added, referring to the state measures.
Source: NY Times
