Currency devaluation sinks stocks
Investors are worried about the health of China’s economy, the second-largest in the world.
new york» A move by China’s government to devalue its currency set off a sharp sell-off in global financial markets Tuesday as investors worried about the health of the world’s second-largest economy.
China’s government said the move to weaken the yuan was a result of reforms intended to make its exchange rate more market-oriented. However, most investors interpreted the action as an attempt by authorities to stimulate a slowing economy. A cheaper yuan will benefit China’s exports by making them less expensive overseas.
The move triggered a wave of selling. Oil, copper and other commodity prices fell as traders anticipated weaker demand from China. That led to big drops in energy and materials stocks. Companies that derive a large part of their sales from China, such as Apple and Yum Brands, also fell sharply.
The Standard & Poor’s 500 index fell 20.11 points, or 1 percent, to 2,084.07. The Dow Jones industrial average lost 212.33 points, or 1.21 percent, to 17,402.84. The Nasdaq composite index fell 65.01 points, or 1.3 percent, to 5,036.79
The price of oil had another big drop, closing at its lowest level in six years.
Oil prices also fell after OPEC said its production increased to a 3-year high, adding further evidence of a global supply glut. U.S. crude fell $1.88 to settle at $43.08 a barrel in New York, its lowest close since March of 2009. Brent crude, a benchmark for international oils used by many U.S. refineries, fell $1.23 to close at $49.18 in London.
The losses for stocks Tuesday wiped out a large part of the gains from a day earlier, when the market logged its largest advance in three months as the price of oil logged a big gain and some corporate deal news boosted investor sentiment.
Investors shouldn’t be too worried by the big moves in market prices, said David Kelly, chief Global Strategist at JPMorgan Funds, because the moves likely were being exacerbated by low trading activity during the summer months.
“It’s another sign of softness in the global economy, and that’s what is hurting the market today,” Kelly said.
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