North American stock markets seesawed once again on Wednesday as investors couldn't decide whether to be encouraged by China's recent move to stimulate its economy or worried that Beijing thinks it needs stimulus in the first place.
The Toronto Stock Exchange continued a recent trend by opening sharply higher, giving back most of its gains through the day and then staging a late rally to finish up 230 points at 13,381.
The Dow Jones was even more exuberant, racking up a 619-point gain in a rally that gained in strength for the day and closed at 16,286. In point terms, that's the third-largest daily gain in the Dow's history.
But the up-and-down moves are just the latest in what's been a volatile week on stock markets. Heading into Wednesday's trading, the Dow had lost ground six straight days, shedding 1,900 points in the process.
"When you're in a market of high volatility, you tend to get big moves in both directions," said Randy Frederick, managing director of trading and derivatives with the Schwab Center for Financial Research.
On Monday, The Dow Jones shed 1,000 points at open before recovering. It's been a similar story on the TSX, where the index's volatility index known as the VIX spiked to its highest level of the year on Wednesday.
At least one trader expects that volatility to continue.
"It's very easy to start a stampede in one direction or the other. All that I can predict is that volatility will stay elevated for at least a few more days," said Stephen Massocca, chief investment officer at Wedbush Equity Management LLC in San Francisco.
The Canadian dollar ticked higher from an 11-year low it set on Tuesday below 75 cents. At midday, the loonie was changing hands at 75.17 cents US, up about a quarter of a cent. The loonie's slight rebound came despite an oil price that continued to drop, with the benchmark WTI contract sliding another 28 cents lower to $39.03 US.
European markets dip
European shares gave back some of their gains from the previous day, which came after Beijing's announcement late Tuesday that it was easing monetary policy to help stabilize gyrating markets and counter short liquidity.
Germany's DAX dropped 0.9 per cent to 10,033.24, Britain's FTSE 100 slipped 1.2 per cent to 5,997.09 and the CAC40 in France shed 1.4 per cent to 4,501.51. However, Wall Street investors looked ready to plunge back in and buy, with Dow futures up 1.3 per cent on Wednesday and S&P futures up 1.5 per cent.
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China's own benchmark, the Shanghai Composite Index, dropped late in the day, losing 1.3 per cent after a volatile series of ups and downs. That followed a 7.6 per cent slump on Tuesday and an 8.5 per cent loss the day before. But stocks in Japan, South Korea and Australia gained.
Markets have been volatile for weeks on deepening unease over the ramifications of slowing growth in China, the world's second-largest economy and the driver of much of global growth over the past decade.
So, many in Asia went to bed on Tuesday smiling over China's decision to slash its key interest rate, only to awaken to yet another decline overnight on Wall Street, Nicholas Teo, an analyst at CMC Markets, said in a commentary.
"All of a sudden, China and the performance of the Chinese markets have now taken the lead in determining daily direction for trading in stocks worldwide," he said.
Fretting over Fed
The apparent inability of Chinese regulators to calm the markets has spooked investors already fretting over when the U.S. Federal Reserve will raise interest rates.
The Fed has signaled it could begin raising its key interest rate from near zero for the first time in nearly a decade as early as this year. But it is not expected to deliver a policy update until it wraps up a meeting of policymakers in mid-September.
In a last-minute sell-off Tuesday, the Dow Jones industrial dropped 1.3 per cent, extending Wall Street's losing streak to six days, the longest such stretch in more than three years.
The Dow had surged more than 400 points Tuesday after China cut its interest rates for the fifth time in nine months in a renewed effort to shore up growth. The central bank also increased the amount of money available for lending by reducing the reserves banks are required to hold.
Those moves have alleviated a crippling shortage of cash available for funding, but do not address the wider problems behind a slowdown that is crimping demand for oil and other commodities, slowing exports and other business activity across Asia.
"This move may help calm the markets in the short term. But it will likely not be enough to fix China's growth problem," Credit Agricole economists Sebastien Barbe and Gary Yau wrote in a note to investors.
The bigger, more intractable problem is how to rebalance the economy away from its overreliance on investment in construction and property investments while trying to keep growth at a high level.
"Bottom line, China is not in a position to address both challenges at the same time today," they wrote.