World stock markets are seeing their worst day since the height of the financial crisis this morning, on the third day of a bloodbath in the markets. The Dow fell over 1,000 points at the open (before paring losses) after futures trading in all three U.S. stock indices was halted after falling more than 5%. The Nasdaq composite fell 8.8% at the open before recovering somewhat, while declining issues outnumbered advancing ones on the NYSE by 1,438 to 22 this morning—that's over 65 stocks lower to every one that is gaining.
In Europe, 13 of the 18 eurozone stock markets are now in a correction (down 10% or more). The German DAX index fell into a bear market in early trading. The STOXX Europe 600 index saw 598 companies falling, and only two rising, as it continues to fall after its worst week in four years.
Flash crashes in individual stocks are happening throughout the markets, as desperate sellers cannot find buyers. #BlackMonday is trending on Twitter, a phrase coined overnight in China to describe a breathtaking 8.5% rout on the Shanghai Composite index that wiped out all gains for 2015, before the government started cracking down and forbidding further coverage of the equity carnage. The SHCOMP is down 40% from its June high.
Global stocks have lost $5 trillion since the surprise devaluation of the yuan by the Chinese government on Aug. 11.
U.S. crude was down over 5% in early trading Monday, extending eight weeks of losses. This is its longest losing streak since the Reagan era. WTI lost 4.8% for the week last week, while Brent crude lost 7% for the week. Oil is trading at six-year lows Monday morning, with WTI at $38.50 a barrel, and Brent at $43.25.
Fears that the Chinese economy is in far, far worse shape than Beijing will admit were inflamed after the surprise devaluation of the yuan, followed by a report that Chinese manufacturing fell to a 6-1/2 year low. Emerging markets, especially those that export raw commodities to China, have seen their stock markets eviscerated.
Flight To Safety
Those who are fleeing equities during this free fall are pouring into Treasuries. The yield on the 10-year T-note was down to 1.92% this morning, as buyers bid up the price. This is the first time the 10-year yield has fallen below 2% since April, and the fourth straight day of gains for Treasuries. The yield on the 1-year German bund is at 0.54%. Bloomberg quoted Thomas Roth, a senior Treasuries trader in New York, as saying, “The story isn’t: ‘Is the Fed going to go?’ It’s: ‘Is the world falling apart? We haven’t had a move in stocks like this in a long time, and it’s a free-for-all. That drives a bid to the safety of Treasuries.”
Gold is up slightly in volatile trading, caught in a tug of war between safe haven demand, and speculators who are having to liquidate assets to meet margin calls on the stock market. Brokers will be making a lot of phone calls today that will make clients unhappy.
The U.S. dollar is definitely not acting like a safe haven this morning, extending losses for another day after falling over 1% on Friday. The DXY index was down over 2% in early trading. The euro rose to 1.15 against the dollar on Friday, and jumped more than 300 pips to over 1.17 Monday morning, a seven-month high against the greenback.
The tenge of Kazakhstan, which was in the news last week when the government removed its peg and it dropped 20%, is beginning to recover, posting its best day in 20 years today. Nations throughout central Asia are especially vulnerable to the commodities crash as their two major trading partners, Russia and China, slow down.
How Low Can It Go?
Contrarian market analysts who have been warning about a stock market fueled by share buybacks and astronomical IPOS are wearing their "I told you so" faces today. With most major indices around the world expected to end the day either in correction (down 10% from most recent highs) or in a bear market (down 20%), the question is "How long can this go on?" U.S. stocks have been trading in a tight pattern for months, and were overdue for a correction. Is the pain stocks are feeling today short-term, or have we muddled through the last seven years, only to see the next cyclical downturn?
Anyone that knows the answer to that question will be very rich.