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The Daily

World Economy Slogs Through Black Monday Hangover, but Uncertainty Remains

Chris Gaetano
Published Date:
Aug 25, 2015
ChinaBlack Monday seems to have been followed by Gray Tuesday as the world economy works to stop the bleeding from yesterday's dramatic market turbulence that has left countries all over the world feeling rattled. In this respect, the events beginning in China seem, so far, more like a punch in the face than a shot through the heart: something that makes you reel and maybe even fall to the floor for a while, and though it might be a sign of unwelcome things to come (such as additional punches) it's not something that, by itself, will kill you. 

So for example, while the Dow Jones Industrial Average lost more than 1,000 points at Monday's opening bell, CNN Money pointed out that it regained about 600 of them at the end of the day, and today has, so far, risen a further 400. Meanwhile, CNBC cites an analyst who believes that, while he's not completely certain, there is at least a 50 percent chance that, in the U.S. at least, the worst is over and the market here has hit bottom. Another analysis by Bloomberg, looking at previous times when the S&P 500 dropped this sharply this fast, came to a similar conclusion. The Telegraph reports that Europe is gingerly getting back on its feet as well, with most exchanges reporting gains of about 2 percent. Overall, it seems that (once again, for now) impulses to begin stocking up on bottled water, canned food and assault weaponry in preparation for the collapse of civilization may be premature, at least according to Goldman Sachs, according to another CNBC article. Goldman believes that the damage will largely be contained to China. 

So then, what's happening in China? Well, the Chinese central bank, in response to the market shock, immediately slashed interest rates and required large banks to reduce the amount of cash they had in reserve, both measures intended to stimulate the economy, according to CNN Money, moves that were applauded by world markets. The government, meanwhile, gave money to brokerages to buy stocks, which executives are currently not allowed to sell, and suspended new company listings, said CNN Money. However, it seems this has not been enough: the Shanghai Composite Index fell a further 7.6 percent today, only slightly less than the 8.6 percent drop it experienced Monday. Overall, according to CNN, markets are uncertain about China's current state, not knowing whether this is a hiccup, or the beginning of something much worse, not least of which due to lack of concrete information on the Chinese economy. Further, the BBC notes that while the market shock overall has little relevance to those outside China due to the country's strict rules on foreign ownership, if it's a sign of an overall slowdown of the Chinese economy, then it could be very worrisome for countries that rely on the Chinese market for exports, such as Brazil or Australia. Considering China's status as the world's second largest economy, how well it recovers from this state of affairs will very much affect the rest of the world, and so, for now, people watch and wait to see what will happen.