Fears about China’s economy and falling oil prices kept world equity indexes under pressure yesterday, with US crude falling to a March 2009 low after data showed an unexpected rise in stockpiles.
Energy shares were the biggest drag on Wall Street, tumbling 2.6 per cent. Major US indexes were each down more than 1 per cent ahead of the release of minutes from the Fed's July meeting, which could hold clues to the timing of an expected rate hike.
In another volatile day in Asia, Chinese shares were able to rebound from a sharp drop before ending the session higher, Vietnam’s benchmark VN Index lost 0.4 per cent after the central bank devalued its currency and Japan's Nikkei index suffered its biggest fall in more than five weeks.
European shares were lower and the weakness extended to Wall Street, with concerns about China weighing on energy and materials sectors.
Economic data showed US consumer prices rose slightly in July and suggested inflation pressures were stabilizing enough to support a rate hike from the Fed this year.
The minutes from the Fed’s July meeting are scheduled for release. Economists believe the Fed will probably raise rates twice this year, with the first hike coming in September, according to the most recent Reuters poll. “Right now, there is a 50-50 chance for a September rate hike,” said Art Hogan, chief market strategist at Wunderlich Securities in New York.
“If there is anything to push them away from September, it would be to get a better understanding of what a China economic slowdown looks like and the effect of possible additional stimulus there.”
The Dow Jones industrial average fell 195.25 points, or 1.12 per cent, to 17,316.09, the S&P 500 lost 22.11 points, or 1.05 per cent, to 2,074.81 and the Nasdaq Composite dropped 53.44 points, or 1.06 per cent, to 5,005.91.
In Germany, lawmakers overwhelmingly voted in favour of a third Greek bailout, increasing the likelihood Athens would be able to make a loan repayment to the European Central Bank later this week.
The pan-European FTSEurofirst index of 300 leading shares was 1.8 percent lower. MSCI's all-country world stock index was down 1.1 per cent.
The dollar edged down 0.2 percent as investors showed caution ahead of the Fed minutes, which they will use to try and assess the timing of a rate hike.
It would be the first rate hike in almost a decade, but rocky emerging markets and a renewed slump in commodity prices that will drag on inflation are raising doubts about the timing.