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Meltdown in Asia and Europe, US Stocks in Turmoil, Oil Plunges, Dollar Swoons, as Central Bank Omnipotence Fails

from Wolf Street:

We’re having the kind of day when the New York Stock Exchange felt compelled to announce very encouragingly before markets opened that it would halt trading for 15 minutes if the S&P 500 drops 7% to 1,833 before 3:25 p.m. Once trading restarts and the index plunges 13% before 3:25 p.m., trading would be suspended for a second time. If the index plunges 20% at any point today, NYSE would shut the market entirely for the rest of the day.

Monday’s meltdown commenced in Japan.

A follow-on to Friday’s debacle. The Nikkei started out in the hole and dove from there, ending the day down 4.6%. This is a market where the central bank has a mega-QE program in place with an explicit policy to buy equities to inflate them. Yet, despite the furious efforts by the Bank of Japan’s trading desk, the Nikkei dropped to 18,541, down 11.5% since June, the lowest since February.

It was in reaction to a whiff of panic in China, triggered by a total loss of faith in the government’s and the central bank’s machinery designed to prop up the markets.

The Shanghai Composite Index opened down nearly 4% and went to heck from there, closing at 3,210, down 8.5%. It annihilated the entire phenomenal bubble gains this year.

The thing is, the government vowed to support the stock market when it hit the “policy bottom” of 3,500 to 3,600 points. Now that it crashed through what was nothing but a line in the sand, hopes have shifted down to a new line in the sand of 3,000 points.

In all Chinese stock markets, only 12 stocks rose, and 2,200 stocks hit their 10%-down limit.

The Shanghai Composite is down 37% from its mid-June peak. At the time, the halcyon bubble era when the index had been up almost 60% for the year and 100% from a year earlier, the government denied that there was a bubble. It’s easy to deny the existence of a bubble and invoke some magic metrics to explain it as rational. But it’s impossible to deny its implosion.

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