Global equity markets experienced another brutal day on Monday, as a massive selloff in the Chinese stock market spooked investors worldwide. Weakness in China, coupled with low oil prices, have sent default probabilities of high-yield energy bonds soaring to their highest levels so far this year.
Why Does China Matter?
Not only is China the second largest global economy, it is the single largest consumer of raw materials. Demand from China is a key element of the equilibrium in equity and commodity markets all over the world, including the oil market.
China’s 8 percent stock market sell-off on Monday was its largest one-day drop since the global Financial Crisis. Much of the selling is likely in response to last week’s weaker-than-expected manufacturing data out of China, which was particularly troubling for the already oversupplied oil market.
WTI crude oil prices fell to new six-year lows on Monday and are now trading below $39/bbl. The United States Oil ETF USO 1.92% is down more than 6 percent to 12.37 on Monday, a new all-time low.
Other Commodities
It’s not just the oil market and the stock market that were…
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