Worries about slowing global economic growth triggered a sell-off of shares in all major capital markets last week, and on Friday leading American and European indices closed with a 3% decline. Wall Street last week was one of the worst since 2011. Although the US economy and the euro zone is not yet a cause for concern, the reason for the market decline were data contraction in the Chinese industrial sector with the fastest growth rate of the global financial crisis now. This has increased the nervousness of the markets on the growth of the second largest economy in the world, which already had reached critical levels after the surprise devaluation of the yuan (also p. 11). The recession in Brazil also unnerved investors turned to safer assets like gold and government securities. These concerns, together with details of overproduction pushed further and oil prices.
What worries investors
Study on the activity of the industrial sector in China showed contraction, prompting investors to worry about a possible impact on the United States. Markets were further frustrated by expectations the Federal Reserve to start raising interest rates. Until last week, there was little doubt that this will happen, but the minutes of the last meeting of the Fed conducted in July showed that the US central bank has concerns about growth in the country because of the problems in China. This is read by gently pressing the pedal towards raising interest rates. At the same time the macro data show good health – unemployment is 5.3 percent, while sales of existing homes in July were the highest level since 2007.
Expectations of a recession in Brazil also outweigh negative market – projected GDP of the largest Latin American economy this year to decline by just over 2%. The change, however, is expected for 2016 – if the polls in January, the Brazilian Central Bank showed sentiment for growth, now they are for another recession.
“Tensions in emerging markets gained, including on expectations the Fed to raise rates. You can not seriously think that half the world economy could be badly without the effects of this begin to be felt in the other half,” he said Wall Street Journal before Charlie Wilson, manager at Thornburg Developing World Fund. Currently the currencies of developing countries suffer from the sharpest depreciation of the Asian financial crisis in 90 years. Among the biggest losers are the Brazilian real, Colombian peso and the Turkish lira, which erased more than 20% of its value since the beginning of the year.