Stock Market Fall Is Official Correction

Stock Market Fall Is Official Correction.

The FTSE 100 index, the index for the top 100 companies in the United Kingdom today hit a seven-year low at 6359, a fall of 10.2% since its high in April of 7104.

Around the globe all markets have fallen with the fear of a global slowdown given problems with the world's second largest economy, China. Today the Chinese stock market fell another 3.4% which is over 10% this week and over 30% since the spring. In Europe both the DAX (German) and the CAC (French) stock markets fell just under 2% respectively today and yesterday. In the Far East, China's major trade partners i.e. Japan and Hong Kong also suffered significant falls, notably the Hang Seng in Hong Kong falling nearly 2%.

We have already written many warnings over the last few weeks about both Europe, particularly Greece's inability to afford to repay its debts despite the bailout being agreed (against the advice of the IMF) and now China has suffered significant falls in export demand meaning that it continually appears to be devaluing its currency in order to make Chinese goods cheaper overseas and thus artificially propping up its economy, which has boomed for the last five years. There are concerns for a global currency war where other governments may react to protect their home manufacturing base if their currencies become too strong such as the United States and the United Kingdom effectively making our exports to expensive and strangling Western economies.

Some jargon for you:

Correction: this means a stock market has fallen by more than 10% in a short period, usually three months

Bear market: a stock market fall of 20% or more (sometimes called a crash)

For bond markets, by that we mean government borrowing via bonds and in the United Kingdom’s case "gilts" or gilt edged securities, 5% falls would represent a correction and 10% falls would represent a bear market.

Traffic Light Alerts

When issuing our weekly investment alerts we have suggested to many clients over the last few weeks that we had invested some of our, albeit small, savings pot into physical gold. Today alone, the price of various precious metals i.e. gold, silver, platinum and copper have all risen by 2% as people rush for safety.

Even yesterday, one of the U.K.'s largest mining companies on the FTSE 100, Glencore confirmed that over £18 billion had been wiped off its value in the last few months, what will happen now?

Friday is going to be a very interesting day and at the time of writing (6 PM) today the DOW in the United States is down 1.5% with still a few hours left to trade.