Market update: Chinese stocks drop on renewed cash crunch fears – 20.12.2013

Source: Henderson Global Investors

After Wednesday’s strong rally following the Fed’s modest asset-purchase tapering announcement, Wall Street finished Thursday marginally lower (S&P 500 -0.1 %; Nasdaq -0.3%). Trading volume was also muted as investors took stock of their positions ahead of the Christmas break. On the macroeconomic front, US initial jobless claims (filings for state unemployment benefits) unexpectedly rose last week to their highest level in almost nine months at a reading of 379,000 – although the data was probably impacted by seasonal layoffs. In a separate report, the National Association of Realtors said sales of previously owned homes fell 4.3% in November to an annual rate of 4.90 million units. Better news came in the area of factory activity, however; the Philadelphia Federal Reserve Bank's index rose slightly in December, giving an upbeat signal on labour market conditions.

Overnight, Chinese stocks pulled back sharply (Shanghai Composite -2.0%), registering a nine-day fall, on concerns over a renewed cash crunch. China's benchmark money market rate rose to a six-month high despite the central bank trying to calm sentiment through a short-term liquidity operation. Despite these jitters, European markets have opened slightly higher this morning; at the time of writing the FTSE Eurofirst 300 Index is up 0.2 %, whereas the FTSE 100 has risen 0.04%. Germany’s DAX is outperforming following data highlighting a positive trend in German consumer sentiment, which reached a near six-and-a half-year high.