Chinese stocks plunged for a second consecutive day Tuesday, with the Shanghai Composite Index posting a triple-digit loss after data from Beijing’s Ministry of Finance showed a surge in fiscal spending to shore up the struggling economy.
The Shanghai Composite Index fell 3.5% or 109.63 points to 3,005.17, its second consecutive drop. With the loss, the Shanghai Composite is down a staggering 24.8% over the past four weeks as global markets jolted following news of a currency devaluation from the People’s Bank of China.
The Shanghai Composite Index is down nearly 42% since June 12, which prompted the first wave of additional stimulus from the PBOC.
Data on Tuesday from the Ministry of Finance showed Beijing’s fiscal spending surged 25.9% annually in August, underscoring the government’s attempt to stave off a more severe economic and financial downturn.
The Chinese economy will struggle to attain Beijing’s full-year growth forecast of 7%. This could place additional pressure on mainland stocks, resulting in even sharper devaluations for the Shanghai Composite Index. However, according to the PBOC, China’s stock market correction is almost over.
China’s CSI 300 Index, which tracks the largest companies listed on the Shanghai and Shenzhen markets, plunged 3.9% or 128.90 points to 3,152.23.
European markets traded choppily ahead of Wednesday’s Federal Reserve meetings. Eurozone blue-chip STOXX 50 was up 0.4% in afternoon trade. London’s FTSE 100 Index was virtually unchanged.
Wall Street ended lower on Monday and is likely to trade sideways leading up to the Fed’s rate announcement on Thursday. Although a median estimate of economists is forecasting no change to the benchmark rate, investors are approaching the meetings with extra caution.
In currencies, the US dollar was virtually unchanged against a basket of global peers. The EUR/USD declined slightly, but held on to the 1.1300 level after research firm ZEW said German economic sentiment fell to ten-month lows this month.
The ZEW economic sentiment index plunged to 12.1 in September from 25.0 the previous month on concerns over China and other emerging markets.
The GBP/USD declined 0.3% to 1.5384 after the UK Office for National Statistics confirmed that consumer inflation had fallen back to zero in August. The annual CPI rate of 0% was down slightly from July’s 0.1%, official data showed. So-called core inflation eased to 1% annually from 1.2%.
In US data, retail sales increased just 0.2% in August compared with 0.7% the previous month, the Commerce Department reported Tuesday.
US industrial production declined more than forecast last month, falling 0.4%.
Based out of Toronto, Canada, Husni Sam Borji is senior macroeconomics analysts who contributes regularly to TradersDNA, where he examines the global financial markets. Husni Sam has authored dozens of government reports and industry whitepapers, as well as thousands of financial articles. Husni Sam holds a BA from the University of Windsor and a Master’s degree in Economic Public Policy from McMaster University.
His expertise includes macroeconomics, fundamental analysis, industry research and global political economy.