Global markets tumble on Chinese data and US warning

There's an economic storm a-brewing today, after weaker-than-expected Chinese data shocked markets, and the US Federal Reserve revealed that it might slow down its money stimulus.

by Michael Northcott
Last Updated: 19 Aug 2013

It all started with a big fall in Japan’s Nikkei stock market, which closed down 7.3% yesterday (at one point it was as much as 10% down). Then came an unwelcome 2% dip in the stock markets of London, Frankfurt and Paris, all thanks to new data that showed a big slowdown in Chinese manufacturing in May - the first fall for seven months.

The news worsened. The Federal Reserve chairman in the US, Ben Bernanke, hinted that the US Treasury’s quantitative easing programme may be pared down to avoid inflation growing any further. Hong Kong’s Hang Send tripped down to 2.5%, Australia and Singapore also fell, and then South Korea’s Kospi dipped 1.2% as well. You don’t even need to see the figures to guess that this means hundreds of billions of pounds worth of company value have simply disappeared across the globe, in a single night.

So what did the famously gnomic Bernanke actually say? ‘If we see continued improvement and we have confidence that that is going to be sustained, then in the next few meetings, we could take a step down in our pace of purchases. If we do that, it would not mean that we are automatically aiming towards a complete wind-down.’ So he is tacitly suggesting that he is flexible on the issue, and that QE could be ramped up again if necessary.

Still, the idea of less money being pumped into the economy has obviously irked investors – despite the fact that, as a temporary 'emergency' measure, it has to stop sooner or later. Continued unabated, QE will just pump up another enomrous asset bubble, which is how we got into this mess in the first place.

Meanwhile, there is at least one nugget of good news to throw into the mix. The Office for National Statistics has confirmed that the UK economy did grow 0.3% in the first three months of 2013 as originally estimated. This is music to George Osborne’s ears as it means we avoided falling into the dreaded triple-dip recession that everyone was so worried about. It also added that the services sector, which makes up about 75% of the UK economy, continues to grow steadily, and is now responsible for more GDP than before the recession.

Whether or not today’s market movements will be in the vein of so many others – namely, a storm in a teacup – remains to be seen. But if China’s growth has slowed, it suggests that the West is buying less stuff. Let’s hope this isn’t the case, as it will mean bracing ourselves for another tough year…

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