Covid-19 up, markets down, down, down

The Covid-19 virus is getting worse in some places, especially Italy but it is also getting a hold in Spain.

And following a bad week on sharemarkets in the last two weeks there are even bigger drops this week, with the Dow Jones slumping.

At the same time oil prices have crashed by more than 20%.

The spread of the virus seems under control in New Zealand for now, but the economic effects are significant with Air New Zealand scaling back operations and many businesses under stress.

We may benefit from plunging oil prices, but our stock market (and Kiwisaver investments) is suffering, and it is likely to follow \world markets down and get worse today.

And problems around the world are much worse, especially currently in Italy where they are shutting down a lot of the country to try and stop the virus spreading.

Reuters: EU seeks to tackle coronavirus as Italy locks down north, prisoners riot

EU leaders will seek a coordinated response to the coronavirus after global markets plunged on Monday and Italy sealed off much of its industrial north, where six prisoners were killed in a riot over curbs on visits.

Joining the global rout, triggered by a 22% slump in oil prices, Wall Street’s main share indexes dropped 7% and the Dow Jones Industrials crashed 2,000 points – which would be its biggest ever one-day ever if there is no recovery by the close.

More than 110,000 people have been infected in 105 countries and territories, and 3,800 have died, the vast majority in mainland China, according to a Reuters tally.

With Italy’s economy already on the brink of recession, bars and restaurants in Lombardy were ordered to close or to restrict entry and maintain a distance of at least a meter between people on their premises.

Major sporting events in Italy, including top-flight Serie A football, will be played without spectators for a month.

This must have a major impact in the Italian economy. And the virus is spreading in Spain.

In Spain, schools were closed in the town of Labastida near Vitoria in the Basque country after nearly 150 cases of coronavirus were identified in the region.

Spain has reported 999 cases in all, most of them in two areas around Madrid and around Vitoria in the north. Prime Minister Pedro Sanchez said it had prepared an emergency plan to deal with the economic consequences of the virus.

It is improving in regions that were first hit.

China and South Korea, Asia’s second-worst-hit country, both reported a slowdown in new infections.

Mainland China, outside Hubei province, center of the outbreak, reported no new locally transmitted coronavirus cases for the second day on Monday, but a top Communist Party official warned people against dropping their guard.

South Korea reported 165 new coronavirus cases, bringing the national tally to 7,478, while the death toll rose by one to 51.

The New Zealand Government is rolling out economic measures.

Beehive: Cabinet approves Business Continuity Package in response to COVID-19

Cabinet today approved the development of a Business Continuity Package to help support the economy through the disruption caused by COVID-19.

The Business Continuity Package includes:

  • a targeted wage subsidy scheme for workers in the most adversely affected sectors.
  • training and re-deployment options for affected employees; and
  • working with banks on the potential for future working capital support for companies that face temporary credit constraints;

As part of the package:

  • The Treasury and IRD have been directed to develop tax policy options in line with the goal of reducing the impact for affected businesses, to support businesses to maintain operational continuity.
  • The Treasury and MSD have been directed to develop policy options to support households to maintain incomes and labour market attachment.

The detail of this package is now being worked through. It will be discussed again at the Cabinet COVID-19 committee on Wednesday, and the Government expects to be in a position to make further detailed announcements next week.

So a bit of dabbling so far.

“New Zealand is well-placed to respond to COVID-19. We have been running surpluses and our net debt position at 19.5% of GDP is well below what we inherited, and well below other countries,” Finance Minister Grant Robertson says.

But if world markets crash they will drag us down, and that could have a major impact.

Newshub: BNZ becomes first major New Zealand bank to predict a recession

BNZ is now using the much-dreaded R-word, saying it’s more than likely there’ll be a recession this year.

“Everyone sort of panics when they hear the word recession,” BNZ head of research Stephen Toplis said. “It’s like the whole world’s going to fall in.

That may be happening now.

CNBC: Oil nosedives as Saudi Arabia and Russia set off ‘scorched earth’ price war

Oil prices fell through the floor in early trading Monday, tanking as much as 30% after Saudi Arabia slashed its crude prices for buyers. The kingdom is reportedly preparing to open the taps in an apparent retaliation for Russia’s unwillingness to cut its own output.

  • Oil prices are down nearly 50% for the year after OPEC+ talks collapsed and Saudi Arabia announced slashed prices in an apparent price war with Russia.
  • With previously agreed OPEC+ production cuts expiring at the end of March, Saudi Arabia and Russia can theoretically pump as much crude as they want.
  • An oil price war will have massive geopolitical consequences, pummeling markets already shaken by the new coronavirus, COVID-19.

Reuters: Wall Street pounded by oil crash, virus fears

Wall Street’s main stock indexes plummeted about 5% on Monday, as a slump in oil prices and the rapid spread of the coronavirus amplified fears of a global recession on the anniversary of the U.S. stock market’s longest bull run.

The energy .SPNY index plunged 18.2% to its lowest level since August 2004 and crude prices were on track for their worst day in three decades as Saudi Arabia and Russia moved to significantly ramp up production after the collapse of a supply cut agreement. [O/R]

Companies listed on the S&P 500 have now lost more than $5 trillion in value in a sell-off sparked by fears that the coronavirus epidemic could tip the global economy into recession.

That report is out of date, Wall Street has got progressively worse through the day, with several trading haalts to try to pause the slide.

At 2:15 pm Monday in New York the Dow Jones is down 7.3% for the day.

The NZX already dropped 2.94% in Monday trading and will be affected by international markets today. All we can do is wait and see what happens.

And all the New Zealand Government can do is try to limit the damage here, but the may be chasing a bear.

 

Virus precipitates bad week on world sharemarkets

The Covid-19 coronavirus has spooked sharemarkets around the world, with the biggest drops seen since the Global Financial Crisis in 2008.

New Zealand’s NZX50 index dropped a further 1.54% on Friday. After hitting a peak of 12,073 last Friday it closed yesterday at 11,437 (having gone as low as 11,098), a drop over the week of 6.7%.

Stuff:  NZX drops 2% on open, stocks on a wild ride as coronavirus threatens economic damage

Stocks are on a wild ride as investors struggle to gauge the potential impact of the coronavirus outbreak on the global economy.

The NZX finished Friday trading down 1.54 per cent, joining overseas markets in reacting to the unfolding Covid-19 outbreak.

But world markets have slumped further as Friday worked it’s way around the world, with the Dow Jones 2.4% lower at midday on their Friday, following a 4% drop on Thursday.

BBC: UK top shares in worst week since financial crisis

London’s FTSE 100 share index has seen one of its worst weeks since the depths of the financial crisis in 2008 as markets continue to reel from the impact of the coronavirus.

Shares have shed almost 13% of their value, wiping £210bn from the value of companies on the index.

“The panic mode is full on,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

BBC – Coronavirus: Shares face worst week since global financial crisis

The main European markets also fell sharply on Friday, with London’s FTSE 100 index down more than 3%.

All the main European share indexes saw big falls on Friday, with Germany’s Dax index down 4.4% and France’s Cac 40 index falling 3.9%.

Earlier in Asia, Japan’s Nikkei 225 index fell 3.7%, bringing its fall for the week to more than 9%. China’s Shanghai Composite index also fell 3.7% on Friday.

Investors are worried the coronavirus impact could spark a global recession.

What is unknown is exactly how bad and how lasting the impact could be. But what is known is that this comes at an already tricky time for the global economy with Japan, Italy, China and the UK among those already seeing growth faltering.

Several key global market indexes – including the FTSE 100 and the Dow Jones – have fallen 10% from recent highs. A drop of that magnitude is generally referred to as a correction.

These drops are likely to further impact on the NZX on Monday.

Stock market graph

Reuters: Dow drops 1,000 points as pandemic fears heighten

The Dow Jones Industrials slumped more than 1,000 points in intraday trading for the third time this week on Friday, as the rapidly spreading coronavirus outbreak raised fears of global recession.

Over the week, virus fears have wiped nearly $3 trillion off the combined market value of S&P 500 companies, putting the three main indexes on track their worst week since the 2008 global financial crisis.

The benchmark S&P 500 fell about 12% from its record closing high hit last week, confirming its fastest correction in history on Thursday.

While the magnitude of the economic damage from the containment measures, which have crippled supply chains and hit business investment, remained unclear, analysts have sharply downgraded their outlook for growth and corporate earnings.

Adding to worries, the Commerce Department’s data on Friday showed U.S. consumer spending rose less than expected in January, a loss of momentum that could be exacerbated by the virus outbreak.

Here in New Zealand there has been a significant impact on tourism, tertiary education at the start of the academic year, and restaurants and fast food have reported a halving of business.

As Covid-19 spreads around the world the health of markets is under threat.

Donald Trump in campaign mode blames his political oppnents,

“I think the financial markets are very upset when they look at the Democrat candidates standing on that stage making fools out of themselves.”

“She’s trying to create a panic and there’s no reason to panic because we have done so good.”

And reassures everyone:

“I’m leading everybody, we’re doing great.”

“The — John’s Hopkins I guess is a highly respected great place. They did a — a — a study, comprehensive. The countries best and worst prepared for an epidemic. And the United States is now — we’re rated number one.”

– from The 31 wildest lines from Donald Trump’s self-congratulatory coronavirus press conference

“It’s going to disappear, one day it’s like a miracle, it will disappear. You know it could get worse before it gets better, it will maybe go away, we’ll see what happens, nobody really knows.”

Of course there are past tweets.

2012:

Image

2015:

Image

Obviously Trump is not to blame for the coronavirus, but he has helped US finances into a potentially precarious position that is overdue for a correction at least.

LA Times (via Stuff): President Donald Trump claimed credit for rising US stock prices, now he owns their fall

Some economists said Trump owns this drop – along with the unwelcome return of market volatility and a possible looming recession – not because of what he has said, but from what he has done.

The Republican tax cuts that Trump championed and took effect on January 1 injected a large fiscal stimulus into the US economy. And they appear to be having the intended effect. At their policymaking meeting in late January, Federal Reserve officials cited the tax cuts as one reason they were upgrading their growth expectations for 2018.

But critics say the cuts come at the worst possible time, when a near-record-long expansion has the nation at full employment.

Then this month Trump signed a two-year budget bill that adds even more stimulus by boosting spending roughly US$400 billion more than had been planned.

A downturn already is overdue. Since World War II, the US has averaged a recession roughly every five years. The current nine-year economic expansion is the second-longest in the nation’s history and by midsummer would be the longest.

The tax cuts, focused on corporations and the wealthy, will raise the already large federal budget deficit by nearly US$1.5 trillion over the next decade, according to Congress’ nonpartisan Joint Committee on Taxation.

Trump administration officials acknowledge that the deficit will jump in the short term. But they said that’s worth it to boost economic growth from the sluggish 2 per cent level that has marked the recovery from the 2007-09 recession and to further strengthen the US military, where much of the additional funding will go.

Fed policymakers also are to blame for the recent market volatility because they let stock prices rise to inflated levels without being more aggressive about interest rate increases last year, said Desmond Lachman, a resident fellow at the conservative-leaning American Enterprise Institute think tank.

That, combined with the additional fiscal stimulus coming from tax cuts and federal spending, led him to lament at a forum this month that “for the sake of one miserable percentage point of GDP we’re prepared to risk the whole economy”.

The virus has already precipitated a market ‘correction. We just have to hope that a sneeze doesn’t become a major malaise.

Many of us will be directly affected by this, in the short term at least. A lot of Kiwisaver funds will be taking a hit. And there is nothing we can do about it apart from perhaps moving our funds to safer schemes.

Share markets down, coronavirus blamed

The New Zealand S&P/NZX50 sharemarket index dropped 1.79% yesterday, with the business impact of the coronavirus (Covid-19) blamed.The S&P/NZX10 index dropped 2.37%.

The drop looks likely to continue today as the US stock market has dropped by nearly 1000 points in early Monday trading (US time).

RNZ: New Zealand stock market has worst day in four months amid coronavirus concerns

The New Zealand stock market has had its worse day in four months, amid fears the impact of the Covid-19 virus is widening.

The market was led lower by Air New Zealand, which fell nearly 6 percent, after warning its earnings may be hit as much as $75 million by the virus.

The spread of the virus outside China has darkened the outlook for world growth with infections and deaths rising in South Korea, Italy and the Middle East.

Australia’s benchmark index is also down about 2.25 percent, and Asian markets are softer.

Business Insider: Dow plummets almost 1,000 points as spreading coronavirus fears rattle traders

  • US stocks were swept up in a global sell-off on Monday as investors grappled with spreading coronavirus fears.
  • The Dow Jones industrial average plummeted as much as 997 points – or 3.4% – in early trading on Monday. The S&P 500 slid 2.5%.
  • Meanwhile, the Cboe Volatility Index – or VIX, widely known as the stock market’s fear gauge – spiked 40% to levels not seen since August.
  • The flight out of risk assets and into safe havens sent the US 30-year Treasury yield to a record low, and gold is trading at the most expensive levels all year.

The markets could bounce back, but it’s also possible this could burst the market bubble that was overdue for a correction at least.

US stock market slump, Trump blames someone else

The US stock market is having a bad week, slumping to lows for the year and said to be ‘on the cusp of a bear market’. President Donald Trump praised himself when the market rose to record highs, but as has become typical of him, he blames someone else when it dives.

Trading has a few hours to go before closing for Christmas but it is not looking good for the last five days:

The US markets closed at 1 pm on Christmas Eve. Dow Jones  closed on 21,792 , down 653.17 (2.91%) for the day.

Nor for the year:

New York Times: Stock Market Rout Has Trump Fixated on Fed Chair Powell

President Trump has unabashedly hitched his political fortunes to a rising stock market. Now, with stock prices in retreat, he has become increasingly fixated on the idea that one man is to blame for the recent rout: Jerome H. Powell, chairman of the Federal Reserve.

After the Fed raised its benchmark interest rate on Wednesday, the fifth consecutive quarterly increase, Mr. Trump fretted to aides that Mr. Powell would “turn me into Hoover,” a reference to the man who was president in the early years of the Great Depression.

Mr. Trump has said choosing Mr. Powell for the Fed job last year was the worst mistake of his presidency, and he has asked aides whether he has the power to fire him.

But the volatile stock market, which just posted its worst week since 2008, is falling in part because of Mr. Trump’s own policies, including an escalating trade war with China, a shutdown of the federal government and the fading effects of the $1.5 trillion tax cut Mr. Trump ushered in at the end of 2017. While the Fed’s rate increases have upset investors — who seem to have a darker view of economic growth than the central bank does — some analysts said Mr. Trump’s musings about the Fed would only exacerbate anxieties.

Mr. Trump’s economic advisers scrambled over the weekend to reassure markets that Mr. Trump was not, in fact, planning to fire Mr. Powell. Treasury Secretary Steven Mnuchin tweeted what he said was a quote from Mr. Trump accepting that he did not even have the power to do so.

While Mr. Trump has turned on his chairman, the Fed’s trajectory should not have been a surprise.

When Mr. Trump chose Mr. Powell as Fed chairman in the fall of 2017, he said, “Based on his record, I am confident that Jay has the wisdom and leadership to guide our economy through any challenges that our great economy may face.”

Mr. Trump also chose three of the other four members of the Fed’s board, all of whom joined Mr. Powell in voting for all four 2018 rate increases.

In conversations with friends and advisers, Mr. Trump has acknowledged responsibility for the selection of Mr. Powell. He told Stephen Moore, an economist at the Heritage Foundation, that it was “one of the worst choices I’ve ever made,” according to Mr. Moore.

Sarah Binder, a professor of political science at George Washington University, said presidents had often tried to shape Fed policy, but the current episode stood apart because Mr. Trump appeared to be acting against his own interest in a stable economy.

“I think what is the unusual part here is that it seems the president has created the crisis,” she said. “His intervention certainly seems to be making things worse for him and worse for the Fed and worse for the economy. It’s just very shortsighted, and we’re not used to that.”

@HoarseWhisperer

The punchline of Trump’s meltdown over the markets and Fed:

– Every sane human knew we were in for a bumpy landing after the long recovery under Obama

– Trump did everything possible to make that worse

– That was a recipe for disaster

Trump is now blaming everyone else for his ignorant, moronic decision to steer the Trumptanic economy right into the iceberg A competent president would have focused on things that fuel growth like:

1) Expansion of trade – rather than the opposite: trade wars

2) Pro-working class tax relief to fuel consumer spending

3) Expansion of “green” incentives to grow renewables and further reduce reliance on oil, gas and coal

4) Small business incentives to spur the true engine of the labor force

5) Reductions of loopholes and credits which shield large corporations from taxation and incent moving business abroad

6) Efforts at controlling health care costs since every consumer dollar spent toward HC isn’t spent elsewhere in the economy

7) Managing down runaway enthusiasm about the economy and growth since it leads to consumers spending their way into deeper debt which then produces a nasty backlash when the bills come due.

Every step of the way, Trump has done the diametric opposite of what he should have.

He steered the economy out of smooth waters toward calamity – and along the way, he robbed the ship of fuel to enrich the already rich.

Now, the battleship can’t be turned fast enough to help and he has no effing clue what he did wrong let alone how to fix it.

Meanwhile, over on Main Street, USA, average Americans who bought his bullshit deficit-spent thinking they’d get a present on Tax Day.

A cooling economy. Consumer wages going sideways. Bills going up. No money in the treasury to help.

This is going to be a sh**-show.

Trump inherited an eight-year expansion. A healthy economy with some navigable challenges.

He burned the whole damn thing down by being an incompetent, narcissistic moron… …and steered the entire economy straight toward full-blown recession.

This is going to be ugly.

Stock markets can be fickle things, but after a good run for years it was on the cards that there would be a correction, or worse, It looks like heading for worse right now, regardless of who is to blame – but the big buck stops at the President’s desk.

The US stock market may drag the world down with it. We can hope that heading into the holiday period it may not be so bad here in New Zealand,

 

US stocks slide again after partial recovery

US stocks are on the way down again after a partial recovery mid-week. By mid Friday they are down over a percent on the Dow Jones index, after a large slump on Thursday of 4.15% on the Dow Jones, 3.8% on S&P and 4.2% on the Nasdaq.

This follows a drop last Friday, a record slump on Monday followed by a partial recovery on Tuesday and Wednesday.

The US market looks headed for it’s worst week in nine years, when the worst financial crisis since the Great Depression hit.

The Dow Jones index over the last three months:

This brings stocks down to the level they were at three months ago, but a drop of 10% is classed as a ‘correction’, and the persistence of this drop and it’s suddenness will be causing some concerns.

Reuters: Wall Street slips into correction territory

U.S. stock indexes slipped into correction territory again with a drop of more than more than 1 percent on Friday, as soaring volatility continued to spook investors.

The three indexes are now more than 10 percent below their record highs hit on Jan. 26.

New Zealand’s NZX 50 was down 1% yesterday so hasn’t been dragged as low, yet. And now the NZX is closed for the weekend it may give some more respite here.

 

 

 

 

US stock market slump

After soaring to record highs last week the US stock market took a dive today (Monday in the US).It recovered a little but ended the day heading downwards again.

It is still well up on where it was a year ago, but current momentum is drastically downwards.

One day movement:

One month movement:

One year movement:

Five year movement:

It’s impossible to know if this is just a sharp correction, or a sign of imminent financial collapse. There have been recent claims that world finances were precarious, and the US economy was on a knife edge, with lessons of the 2008 Global Financial Crisis not heeded.

Is it a good time to move Kiwisaver savings to a more conservative fund?

 

Year starts with share market falls

2016 has started badly on international share markets, reportedly led by China after their manufacturing sector contracted again in December.

  • China – down 7%
  • FTSE 100 – down 2.39%
  • Germany’s Dax – down 4.28%
  • Dow Jones – down 2.42% (at 12:33 pm)
  • S&P 500 – down 2.36%
  • Nasdaq – down 2.81%
  • MSCI All-Country World Index fell 2.4 percent by 12:34 p.m. in New York, topping its slide of 1.5 percent to start 2001.

New Zealand’s NZX market opens today at 10 am.

Bloomberg: Global Stocks Tumble Following Shanghai’s 7% Crash

  • Dow Average heads for worst start in at least eight decades
  • Brent rallies on Iran tension, yen rallies on haven demand

The Dow Jones Industrial Average sank more than 420 points as a selloff in Chinese equities spread around the world, fanned by concerns that economic growth is decelerating from Asia to North America.

The U.S. blue-chip index tumbled toward its worst start to a year since at least 1932, while banks and technology shares led the Standard & Poor’s 500 Index lower. A measure of global equities tumbled headed for its worst inaugural session in at least three decades. Emerging markets slid the most since August as slowing manufacturing triggered a selloff that halted Shanghai trading.

Radio NZ: International share markets tumble

Wall Street has continued the rout on global share markets, with the Dow Jones, S&P 500 and Nasdaq indexes all opening more than 2 percent down.

It followed sharp falls in China, where trading on the main stock markets was halted early after indexes tumbled 7 percent.

A survey indicating China’s manufacturing sector contracted again last month was blamed for the falls. Other Asian markets also fell.

Meanwhile, news that Saudi Arabia had broken off diplomatic ties with Iran sent oil and gold prices higher.

Earlier on Monday, trading on China’s Shanghai and Shenzhen stock exchanges was halted for the first time under new “circuit breaker” rules, which are designed to curb market volatility.

The share price falls came after more signs of trouble in the world’s second-largest economy.

Some analysts also attributed the decline in share prices to the imminent end of a six-month lockup period on share sales by major institutional investors, a policy implemented to shore up indexes. Big shareholders may start dumping shares once the ban is lifted on Friday.

Huang Cengdong, an analyst for Sinolink Securities in Shanghai, said: “The market will not improve because there will be heavy selling in the near future.”

An ominous start to the financial markets in 2016.

UPDATE: By the close of the US trading day (Monday) the damage had reduced:

  • Dow Jones down 1.58%
  • S&P 500 down 1.53%
  • Nasdaq down 2.08%

Early in the first trading day for the year on the NZX 50 – down 1.19%

UPDATE: at close of trading the NZX 50 ended up down 0.73%

Better Tuesday

Writing columns during significant share market upheaval has it’s risks, Tracey Watkins at Stuff yesterday (posted at 13:16):

Is New Zealand immune from the Chinese contagion?

OPINION: Here we go again.

As world share markets slide into a fresh crisis, John Key was quick to reassure on Tuesday that New Zealand has plenty of tools in the tool kit to head off a recession.

Interest rate cuts, bringing forward infrastructure spending, even tax cuts are weapons at the disposal of the Government and Reserve Bank to stimulate the economy. But with memories still raw from the Global Financial Crisis, the biggest threat facing the economy may be one the Government finds harder to head off – a loss of confidence.

Apart from China confidence appears to have recovered by the end of the day with tghe NZX recovering slightly and the Australian stock markey bouncing back by 2%.

Also at Stuff (posted at 18:20):

NZX bounces back after ‘Black Monday’ hangover

“Black Monday” is being followed by “Better Tuesday”.

The Kiwi share market shook off a hangover from “Black Monday” to closer higher on Tuesday amid signs of hope for global markets overnight.

The NZX 50 fell more than 2 per cent within seconds of trading opening on Tuesday.

But stocks staged a recovery which strengthened after the Australian share market showed resilience.

And The Dow Jones looks like in recovery mode too (about an hour until close on the US Tuesday):

DowJones150825-3days

And the five year trend shows more of a correction than a crash.

DowJones150825-5yr

For now at least.

Stock market plunge

World stock markets are all significantly down in Monday trading. New Zealand can do little but try and keep the fundamentals here sound. There’s nothing we can do about the world markets. The Shanghai market was down 8.4% yesterday.

NZ Herald: Wall St tumbles as China syndrome rocks world markets

The Dow was down 282 points, or 1.7 percent, to 16,176 points as of 1:54 p.m. Eastern time. The S&P 500 dropped 39 points, or 2 percent, to 1,931. The Nasdaq composite fell 72 points, or 1.5 percent, to 4,663 points. The three indexes are down for the year.

The New Zealand sharemarket was a sea of red ink yesterday as stocks were sold down in response to weakness in the global markets and investors worldwide became increasingly nervous about China’s economic prospects.

By the close of trading, the S&P NZX 50 was down 143 points, or 2.49 per cent, to 5616, with $2.25 billion shaved off the market’s total value. It was the worst day on local markets in four years.

Australia’s All Ordinaries Index fared even worse, slumping 3.66 per cent. In China, the Shanghai Composite Index was down 8.4 per cent at 3211 late yesterday.

A big blip or a slide?

From New York Times: Why Global Financial Markets Are So Turbulent

Last week, global financial markets were churning, but it really only mattered if you were an oil trader, Chinese bureaucrat or hedge fund manager.

Now it’s starting to get scary for everyone.

An 8.5 percent drop in the Shanghai Composite index in Monday’s trading session spread to financial markets across the world. In the United States, the broad Standard & Poor’s 500 index was down 2.5 percent in Monday morning trading, after steeper declines in Asian and European stock markets, falling prices for oil and other commodities, and a rush of money into the safety of United States Treasury bonds.

It started in China:

The immediate trigger to the outburst of global volatility was China, where the sharp drop in stocks Monday continued a rout that has been underway — with periodic pauses thanks to government interventions — all summer.

The Chinese economy is slowing, and the 38 percent drop in the Shanghai Composite Index since June 12 is indeed a huge number. There is no question that this giant economy is struggling with a transition from the investment-and-export-led boom of the last generation toward something more sustainable.

But a few facts make China’s problems less satisfying as an explanation for the turmoil across world markets. The Chinese stock market has risen sharply over the past year as millions of middle-class Chinese citizens took to making investments. Even after its steep drop this summer, the Shanghai index is down less than 1 percent for the year and still up 43 percent from one year ago.

Other markets followed:

Some of the key evidence for the “this is about more than China” story come from other emerging markets, stretching from Malaysia to Mexico, that are also taking it on the chin. Their currencies and stock and bond prices have fallen sharply over the last week. Some of that most likely reflects exposure to the Chinese economy. But some of it reflects something bigger.

In effect, the Fed’s easy money policies led global investors to search for higher-yielding securities, which they found in many faster-growing emerging markets. Money gushed into these countries in search of better returns from 2010 until 2013, driving up prices of assets.

But as the end of the era of cheap dollars has approached, that hot money has pulled out — and created volatile spikes in interest rates and damage to those emerging economies.

And oil.

The price of a barrel of oil fell from around $60 in late June to under $40 on Monday. Over time, that will be good news for American and European energy consumers, but there are complex feedback loops that probably make the commodity sell-off both a cause and a result of the broader emerging markets panic.

Waiting for the Fed.

In the background of all of this is a crucial decision looming for the United States Federal Reserve. Fed officials have expressed confidence that the domestic economy is on track and that the time is right to raise interest rates after nearly seven years of keeping them near zero. It could make that move at its policy meeting Sept. 16 and 17.

Fed officials have indicated a determination to base interest rates on what is most appropriate given the state of the American economy and not to overreact to fluctuations in markets. The latest volatility will test that resolve.

Of course, it is the Fed’s job to set policy based on where the economy is going, not where it has been. If markets keep falling, that could endanger American growth prospects. On the other hand, the Fed’s job isn’t to try to protect investors from the risks of a downturn.

Where too from here?

The Dow Jones is currently down 4.19% (US Monday).

UPDATE: After a down and up day the Dow Jones closed significant;y higher tha it’s opening lows but still finished down 3.58%