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China’s slowing growth helps sink stock markets in U.S.
Question of the Day
Global stock markets plunged Monday after China reported that its economy grew more slowly in the first quarter setting off a drop of more than 250 points in the Dow Jones index for the worst trading day of the year.
After setting a string of record highs in recent days, the Dow fell 265.86, or 1.8 percent, to close at 14,599.20. The broader S&P 500 index fell 36.49 points, or 2.3 percent, to 1,552.36. Exchanges across Europe all posted losses as well.
The news that China’s economy grew by 7.7 percent far less than its double-digit pace in the recent past was added to signs that the U.S. economy weakened significantly during March. The combination threw world stock and commodity markets into a downturn only a week after the Dow and other major U.S. indexes hit all-time highs.
“A spring swoon for the stock market isn’t surprising given the strong run we’ve been enjoying,” said Jerry Webman, chief economist at Oppenheimer Funds, but he believes markets will recover when investors see that the economic weakness is only temporary. “Market fundamentals and the economy appear to be in generally better shape now than they were last year at this time,” when the economy took a major nose dive, he said.
Economist and trader David Gartman noted that 7.7 percent growth is far above the U.S. average of around 2.2 percent and “is not a low growth rate for most nations, but China is not most nations.”
With millions of Chinese migrating from the interior of the country to the coast in search of factory jobs, “China needs 9 percent growth to absorb the tens of millions of Chinese still moving from the nation’s western provinces to the east 7.7 percent simply will not suffice, and when the news hit the markets everything broke and broke hard.”
China’s slowdown pummeled commodity markets, including oil and gold, because it has become the world’s top consumer of nearly all major commodities in its race to build factories, offices and roads, voraciously consuming everything from copper to coal.
Gold futures plummeted $99 to 1402.30. Premium crude prices fell $2.20 to $89.09 a barrel in afternoon trading on the New York Mercantile Exchange.
“The sell-off in commodities appears to be an overreaction to recent events,” said Paul Christopher, chief international strategist at Wells Fargo Advisors. “China is a key user of industrial commodities and had an unexpectedly weak quarter,” but he expects growth there to gradually pick up later this year.
In the market for U.S. government bonds, the yield on the 10-year Treasury note fell back to 1.69 percent, its lowest level of the year. That is down from 1.72 percent late Friday. The last time the 10-year yield hit 1.69 percent was April 5, when the government reported that U.S. employers hired far fewer workers than expected in March.
People buy U.S. government bonds when they are concerned about the economy.
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