Market Drop

High & Low Finance

Market Drop Fueled by a Crisis, Anxiety and an Error

"Combine one part nervous traders, one part Greek crisis and one part trader error. Stir in one part central bank complacency. Bring to boil. Panic.

That combination produced one of the wildest days ever in financial markets, with the Dow Jones industrial average, at one point, down almost 1,000 points while the euro sank to its lowest level in more than a year. There were substantial declines in emerging markets, whose economies had seemed to be booming, and in developed markets fearful of renewed recessions.

Even though a substantial part of the worst plunge appeared to be linked to a trader error — one $40 stock fell for a time to one penny — prices had fallen around the world even before such mistakes began to happen.

It appears that investors are again growing more hesitant to own assets like stocks and bonds, particularly since many now cost far more than they did only a few months ago. Another sharp retrenchment by investors, consumers and businesses could threaten the current global recovery by choking off financing and new orders for companies.

The height of panic on Thursday was reached shortly after lunchtime in the United States. First some currencies began to fall rapidly, with the euro suffering especially against the Japanese yen.

That could have been an indication that some large traders were unwinding positions. It has been popular to borrow yen at low interest rates and then use the money to speculate in higher yielding assets denominated in other currencies. Anyone unwinding such a trade would buy yen to repay the loan.

Then, within a few minutes, the United States stock market appeared to be collapsing. Some of the decline was real, but another part of it was simply trading gone awry. "

By the close of the day, the Dow was down 347.80 points, or 3.2 percent, to 10,520.32.

read more: http://nyti.ms/bEDCuF