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  • Writer's pictureAIM Team

US, global markets drop sharply after a wild day of trading

Sharp declines hit the world’s financial markets again on Monday, with much media attention focused on investors’ concern over the slowdown of growth in the Chinese economy. The AP (8/25, McDonald) notes that the Dow Jones Industrial Average lost 588.47 points to close at 15,871.28, while the S&P 500 index was down 77.68 points, to 1,893.21, and the Nasdaq Composite Index fell by 179.79 points to 4,526.25. USA Today (8/25, Shell) reports that the “selling spree” had “infected every corner of the U.S. stock market,” with the Dow, the “small-company Russell 2000, large-company S&P 500 and tech-dominated Nasdaq” all down more than 10% from their record highs earlier this year, “in full-fledged corrections.”

The Washington Post (8/25, Harwell) says Monday’s “worldwide selling frenzy” came as “investors worried over China’s slowing economy extended a global-market meltdown.” The “whiplash underscored investors’ shaken confidence” in the Chinese economy and the country’s central bank. The New York Times (8/25, A1, Popper, Gough, Subscription Publication) cites “concerns over China’s economic slowdown and a souring view of emerging economies” as having “rattled” markets internationally in the past few days, with “no signs of letting up.”

AFP (8/25, Jackson, Zhang) notes that Chinese stocks “have tumbled since peaking in mid-June and authorities have launched broad interventions to try to restrain the drops,” but the government’s “latest market intervention has failed to restore confidence.” Reuters (8/25, Agrawal) similarly says that the declines have been fueled by Beijing’s lack of new market-stabilization efforts.

Administration Stresses That US Economy Remains Strong. Reuters (8/24) reports that the White House saidMonday that President Obama had been briefed on developments in the financial markets. Presidential spokesman Josh Earnest stressed that the US economy remains strong and that officials are continuing to press China to pursue financial reforms. The Hill (8/24, Fabian) and the Washington Times (8/25, Sands) each quote Earnest as characterizing the market turmoil as an argument to avoid “self-inflicted wounds” to the nation’s economy, and he urged Congress to reauthorize the US Export-Import Bank and to relax spending limits on domestic investment programs.

Separately, The Hill (8/24, Schroeder) says that the Treasury Department, “through a spokesman, downplayed the drama by saying it was closely monitoring the matter but does not comment on day-to-day market developments.” The Hill adds that there is “ample evidence that, beyond the stock market hit, the U.S. economy is on solid ground.”

Several reports in the latest news cycle suggest that the US economy remains resilient enough, at least for now, to avert significant damage from market swings. McClatchy (8/24, Hall) looks at major economies around the world and says the US “looks like the cleanest shirt in the dirty pile.” In a front-page story, the Wall Street Journal (8/25, A1, Hilsenrath, Timiraos, Subscription Publication) asserts that although few people believe the current volatility will trigger a recession, given the nation’s general economic strength, there could be a significant impact if the dollar soars and cuts into exports. In a sidebar, however, the Wall Street Journal (8/25, A1, Driebusch, Subscription Publication) reports investors are still trying to determine if the sharp declines are a short-term pullback or a precursor to bigger trouble.

WPost: US Leaders Need To Avoid Budget Clashes As World Market Swoons. In an editorial, the Washington Post (8/25) says the US needs to drive stronger world economic growth. The president and the Republican-led Congress “need to take the news from markets seriously, as a reminder of how fragile the global recovery remains, and how vulnerable it is to any new shocks.” As a result, it is “now doubly important that they avoid market-churning drama over the federal debt ceiling and other budgetary deadlines looming this fall.”

Speculation Emerges That Fed Will Delay Rate Increase. Politico (8/24, Warmbrodt, Prior) reports that the market turmoil “may have shattered” the Federal Reserve’s “carefully laid plans for an increase in the main borrowing rate as soon as September.” USA Today (8/25, Krantz, Davidson) says the “stomach-churning volatility … could be just the thing” to let the Fed “off the hook,” with “enough doubt about the economy” to preclude the central bank from “taking up short-term interest rates” at its September meeting.

However, Bloomberg News (8/24, Matthews, Vekshin) reports that the president of the Federal Reserve Bank of Atlanta, Dennis Lockhart, “said he continues to expect the first interest-rate hike in nearly a decade this year, while cautioning that a stronger dollar, a weaker Chinese yuan and falling oil prices complicate the outlook.”

In an opinion piece for the Wall Street Journal (8/25, A11, Subscription Publication), Harvard professor Martin Feldstein blames the Fed’s stimulus policies for boosting many stocks beyond their normal level, making them ripe for a sharp selloff.

China Looks To Adapt To New Economic Realities. On its front page, the Washington Post (8/25, A1, Denyer) reports that China’s economy is “undergoing a painful transition that has left heavy industry reeling and set investors’ nerves jangling.” The piece focuses on the impact on the three provinces of northeastern China, known as the “Rust Belt,” whose difficulties “reflect many of the challenges that China faces as a nation: to curtail the power of state-owned enterprises and allow market forces to play a greater role, to find new drivers of growth now that the export, infrastructure and housing-led boom is playing out, and to reform the economy without causing more pain and upheaval.”



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