US Market Bouncing Back After Monday’s Bloodbath

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Guy Bentley Research Associate, Reason Foundation
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The Dow Jones surged 390 points just 15 minutes after the opening bell rang Tuesday at the New York Stock Exchange.

Traders took heart from China’s interest rate cut of 0.25 percentage points and the Dow is rapidly making up for Monday’s heavy losses. On Tuesday, the People’s Bank Of China reduced its main interest rate to 4.6 percent with the cut taking effect Wednesday. It’s fifth rate cut since November.

The PBOC said the rate reduction would cut “the social cost of financing to promote and support the sustainable and healthy developments of the real economy.”

Tech stocks were leading the charge with Apple and Facebook making strong gains. The S&P 500 index is also bouncing back, rising 1.6 percent in early trading. (RELATED: US Futures Make HUGE Jump, Here’s What You Need To Know)

Market watchers will be keen to see a strong rebound that makes up the 500 points lost in Monday’s global sell-off which saw markets from Shanghai to London shedding billions of dollars of value.

China’s so-called “Black Monday” shook investor confidence as faith in the country’s growth rate diminished, with many doubting it will be able to hit the target of seven percent or more per year. (RELATED: Dow Plunges 1,000 Points: China’s ‘Black Monday’ At Center Stage As Global Stocks Tank)

European markets were buoyed by the positive open on Wall Street with the FTSE 100 climbing 2.6 percent, the Dax up 4.3 percent and France’s Cac 40 rising 4.1 percent.

Senior economist at Berenberg Kallum Pickering said:

[This] has proved to markets that China is willing to act. Investors have been waiting for them to act and they have. Is this sufficient? It might not be but it does set a precedent that they are engaged and looking to prevent any further declines.

Oil prices are also on the rise following with Brent Crude up three percent at $44 a barrel. The day’s trading is set to be positive with consumer confidence hitting a seven-month high at 115.1.

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