Stock market flight goes on

Markets have stumbled for another day, as investors continue to fret about declines in the Chinese market.Investors continue to seize upon any excuse to get out of equity markets, with major indices moving further and further into the red as the day has gone on. The resurgence of selling in China has perhaps been the most unpleasant development for investors. A few days of quiet in those markets had given us a false sense of security, with an entirely unwarranted perception that the problem of markets going down as well as up had been fixed. The calm of the past week obscured the immutable rule that it is always unwise to resurrect the ghost of King Canute and his advisors by attempting to stand in the way of the oncoming tide. 

China’s government and investors will learn the truth of this eventually, but it may cost them a lot more in failed interventions along the way. The IMF added to tensions this afternoon, airing its belief that the ECB was less than wholly-committed to its QE programme; the Fund might be keen for the ECB to do more, but given the rise in the euro today it seems that markets do not expect them to bow to pressure at any point in the near future.

US earnings season and M&A activity continues to underwhelm Wall Street, which fell again in the early part of Monday’s session. The Dow hit its lowest level in almost six months this afternoon, with the situation not helped by a durable goods figure that was comfortably ahead of expectations. The ‘summer swoon’ goes on, as investors shrug their shoulders and ask why they should continue to back an aging rally which is increasingly led by just a few star performers, while everyone else seems to see their revenues beginning to slide. Throw in a Fed meeting this week that might finally pave the way for a rate hike and you have the ideal recipe for a sizeable correction in equities, one that might finally provide a reason to buy back in.