Black Monday Circles the Globe

The VIX volatility index which tracks volatility in the S&P 500 experienced one of the biggest two-day moves higher, rising 45.34% alone yesterday as markets reopened the week to chaos. Stocks were consumed by the losses that began during the Asian session with the Chinese Shanghai Composite plunging over 8% with European equity benchmarks plunging in excess of 4%.   US equity indices closed down nearly 4% after the Dow Jones, S&P 500, and Nasdaq were each halted after substantial losses at the open caused a snowball effect. Flash crashes across over 4500 stocks saw the Dow Jones Industrial Average plunge over 1100 points before moderately recovering. Nevertheless, the explosion higher in volatility is hearkening back to the last financial crisis where swings of this nature were frequent occurrences. The Shanghai Composite is already down an additional -7.51% in today’s session, raising the possibility of further losses across global equities.

Amid all the turmoil in global stock benchmarks and emerging markets, the Euro Area continues to show signs of growth, albeit slow expansion. This morning’s second quarter reading of German GDP saw the economy expand at 0.40%, growing at a 1.60% annualized pace and matching expectations. Fears about a potential slowdown facing the core Euro Area economies are not unfounded, but as the German’s continue to prove, is possible even if below sustainable long-term levels. The German economy continues to benefit from the weaker Euro with expanded easing measures forecast from the European Central Bank as the region potentially trends towards deflation territory. Further asset purchases will add liquidity to the system, keeping the Euro competitive especially with the devaluation happening across emerging markets. The German DAX is looking to open in positive territory after slumping -4.70% during yesterday’s session.