Price of gold and the stock market plummet on news that Chinese growth unexpectedly slows - prompting fresh fears for global economy
China's economic growth slowed
unexpectedly in the first three months of the year, causing panic to
grip financial traders worldwide and the price of gold to plummet to its
lowest point in more than two years.
The world's second-largest economy grew by 7.7 per cent over a year earlier, down from the previous quarter's 7.9 per cent, and short of hopes for about 8 per cent.
The Dow Jones Industrial Average dropped more than 155 points, approximately one per cent, by about 1:30 p.m. today. The Nasdaq average was down more than 50 points, more than one and a half per cent.
The Standard & Poor's 500 index
slumped 18 points to 1,570, a loss of 1.2 percent. Of the 10 industry
groups in the S&P 500, materials and energy stocks fared the worst,
sliding 3 percent.
The FTSE 100 Index in London slumped 72.1 points to 6312.3, with fears over Chinese demand causing mining stocks to fall by as much as 13 per cent. By 12.45pm, the index was down 74.08 at 6310.31.
A recovery still is under way but is 'really very soft - very slow and gradual,' said Societe Generale economist Wei Yao.
Frank Fantozzi, CEO of Planned Financial Services, a wealth management firm, said: 'I think you're getting some panic selling right now.
'People who have been holding on to gold expecting a rebound are now thinking, "I better get out.'"
Analysts have warned that China's recovery from its deepest slump since the 2008 global crisis is weak and is being supported by bank lending and government-led investment, while growth in consumer spending is subdued.
A slowdown in Chinese growth and demand for goods ranging from iron ore to factory technology and consumer goods could send out ripples in the global economy.
The price of gold dropped by more than $30 in a matter of minutes at one point this morning. Shortly before noon, the gold spot price was down almost 9 per cent today, at $1,370 per ounce.
Besides the disappointing news in China, Gold is already under pressure from a variety of factors including a proposed sale of Cypriot gold holdings and disappointing U.S. numbers last week.
Investors slashed their exposure to commodities, with oil, copper and silver falling hard and fast. Oil fell nearly three per cent, silver dropped 10 per cent, and industrial metals plummeted, with copper hitting its lowest in over a year. In the grains market, wheat, corn and soybeans were all down.
In gold, 'what we now see is panic selling, perhaps triggered by the Fed's stimulus view.
Recent economic data in China has given mixed signals, raising questions about whether a full-fledged recovery was gaining traction.
Inflation fell in March, indicating consumer demand might not be as strong as Beijing hoped.
Import growth accelerated, suggesting companies and consumers were buying more, but some analysts said those figures might be distorted and unreliable.
Also in March, growth in factory output weakened to 8.9 per cent, down 1 percentage point from the first two months of the year, according to the National Bureau of Statistics.
That was the lowest growth since August 2012, when fears of an abrupt 'hard landing' of plunging growth were strong. Beijing responded by boosting lending and government spending.
Chinese leaders are unlikely to repeat that strategy after a 60 per cent surge in credit in the first quarter produced a lackluster response, said IHS Global Insight analysts Xianfang Ren and Alistair Thornton in a report.
'We have lost confidence in a robust recovery,' they said.
The rise in credit prompted ratings agency Fitch to cut its rating on China's long-term local currency sovereign debt last week, warning of potential financial risks.
Fitch said China's total credit, including informal lending among private entrepreneurs, may have risen to the equivalent of 198 per cent of gross domestic product in 2012 from 125 per cent in 2008.
Forecasters who expected growth to accelerate might have been misled by inaccurate trade data due to companies falsely reporting higher exports as a way to evade capital controls and bring money into China, said Moody's Analytics economist Alaistair Chan.
Despite the surge in lending, Monday's data showed a slowdown in investment growth that is driving the latest recovery.
First-quarter growth in spending on factories, real estate and other fixed assets declined to 20.9 per cent from the 21.1 per cent rate for the first two months of the year.
That shows the economy suffers from structural problems including excess production capacity in some industries that makes more investment unprofitable, said Yao.
'Given all this credit injected into the system, the future should look better,' said Yao.
'Nevertheless, the level of efficiency in the economy has declined. The same amount of money will no longer produce the same amount of growth.'
In a positive sign, growth in retail sales edged up to 12.6 per cent in March from 12.3 per cent for the first two months of the year.
Recent increases in required minimum wages and an improved housing market should help to boost household spending, said Moody's Analytics economist Fred Gibson in a report.
Still, he cautioned, consumer confidence could be hurt if China's export weakness persists.
Also Monday, the World Bank trimmed its growth forecast for China this year by 0.1 percentage point to a still-robust 8.3 per cent.
The world's second-largest economy grew by 7.7 per cent over a year earlier, down from the previous quarter's 7.9 per cent, and short of hopes for about 8 per cent.
The Dow Jones Industrial Average dropped more than 155 points, approximately one per cent, by about 1:30 p.m. today. The Nasdaq average was down more than 50 points, more than one and a half per cent.
Traders on Wall Street sold in a panic following news of slower-than-expected growth in China during the first quarter
The FTSE 100 Index in London slumped 72.1 points to 6312.3, with fears over Chinese demand causing mining stocks to fall by as much as 13 per cent. By 12.45pm, the index was down 74.08 at 6310.31.
Financial markets around the world dropped after news of China's slower-than-expected growth was announced
'People who have been holding on to gold expecting a rebound are now thinking, "I better get out.'"
Analysts have warned that China's recovery from its deepest slump since the 2008 global crisis is weak and is being supported by bank lending and government-led investment, while growth in consumer spending is subdued.
A slowdown in Chinese growth and demand for goods ranging from iron ore to factory technology and consumer goods could send out ripples in the global economy.
The price of gold dropped by more than $30 in a matter of minutes at one point this morning. Shortly before noon, the gold spot price was down almost 9 per cent today, at $1,370 per ounce.
Besides the disappointing news in China, Gold is already under pressure from a variety of factors including a proposed sale of Cypriot gold holdings and disappointing U.S. numbers last week.
Investors slashed their exposure to commodities, with oil, copper and silver falling hard and fast. Oil fell nearly three per cent, silver dropped 10 per cent, and industrial metals plummeted, with copper hitting its lowest in over a year. In the grains market, wheat, corn and soybeans were all down.
The Dow Jones Industrial Average had dropped more than 177 points by 2 p.m. today, more than a full per cent point
'The Fed has given
the signal that there's a possibility to reduce QE (quantitative
easing), and that took a lot of trust out of gold,' said Dominic
Schnider, an analyst at UBS Wealth Management.
'And people recognise that an environment where you have no inflation is a powerful driver to get out of the metal.'
Investment bank Goldman Sachs said last week that the price of gold could weaken further.
The warning came days after French bank Societe Generale put out a report called The End Of The Gold Era, predicting gold would keep sliding this year and next.
'If you want to be worried about China, there's plenty to keep you awake at night,' said Sean Corrigan, chief investment strategist at Diapason Commodities Management in Switzerland.
They are trying to avoid job losses while they pursue more self-sustaining growth based on domestic consumption instead of exports and investment.
The latest quarterly growth was above Beijing's official target of 7.5 per cent for the year.
That
is well above forecasts in the low single digits for Western economies
and Japan but far from China's blistering growth of the past decade. 'And people recognise that an environment where you have no inflation is a powerful driver to get out of the metal.'
Investment bank Goldman Sachs said last week that the price of gold could weaken further.
The warning came days after French bank Societe Generale put out a report called The End Of The Gold Era, predicting gold would keep sliding this year and next.
'If you want to be worried about China, there's plenty to keep you awake at night,' said Sean Corrigan, chief investment strategist at Diapason Commodities Management in Switzerland.
They are trying to avoid job losses while they pursue more self-sustaining growth based on domestic consumption instead of exports and investment.
Falling value: Investors are selling commodities
- including gold, silver and copper - today on fears over China's
growth. Gold dropped to its lowest price in more than two years as it
dropped below $1,400
Recent economic data in China has given mixed signals, raising questions about whether a full-fledged recovery was gaining traction.
The Chinese government had hoped for 8 per cent growth in the first quarter of 2013
Import growth accelerated, suggesting companies and consumers were buying more, but some analysts said those figures might be distorted and unreliable.
Also in March, growth in factory output weakened to 8.9 per cent, down 1 percentage point from the first two months of the year, according to the National Bureau of Statistics.
That was the lowest growth since August 2012, when fears of an abrupt 'hard landing' of plunging growth were strong. Beijing responded by boosting lending and government spending.
Chinese leaders are unlikely to repeat that strategy after a 60 per cent surge in credit in the first quarter produced a lackluster response, said IHS Global Insight analysts Xianfang Ren and Alistair Thornton in a report.
'We have lost confidence in a robust recovery,' they said.
The rise in credit prompted ratings agency Fitch to cut its rating on China's long-term local currency sovereign debt last week, warning of potential financial risks.
Fitch said China's total credit, including informal lending among private entrepreneurs, may have risen to the equivalent of 198 per cent of gross domestic product in 2012 from 125 per cent in 2008.
Forecasters who expected growth to accelerate might have been misled by inaccurate trade data due to companies falsely reporting higher exports as a way to evade capital controls and bring money into China, said Moody's Analytics economist Alaistair Chan.
The price of gold has plunged to a two-year low today as investors dump commodities (Source: Gold Made Simple)
First-quarter growth in spending on factories, real estate and other fixed assets declined to 20.9 per cent from the 21.1 per cent rate for the first two months of the year.
That shows the economy suffers from structural problems including excess production capacity in some industries that makes more investment unprofitable, said Yao.
Beijing's central business district. By 12.45pm
the FTSE 100 index was down 74.08 at 6310.31 in response to the Chinese
growth announcement
'Nevertheless, the level of efficiency in the economy has declined. The same amount of money will no longer produce the same amount of growth.'
In a positive sign, growth in retail sales edged up to 12.6 per cent in March from 12.3 per cent for the first two months of the year.
Recent increases in required minimum wages and an improved housing market should help to boost household spending, said Moody's Analytics economist Fred Gibson in a report.
Still, he cautioned, consumer confidence could be hurt if China's export weakness persists.
Also Monday, the World Bank trimmed its growth forecast for China this year by 0.1 percentage point to a still-robust 8.3 per cent.