On 20 August, 2015 – Stocks decline as volatility spreads

Another slump in the Chinese stock market spread around the globe Thursday, causing steep declines in Asian, European and US shares.
United States
US stock indices dropped Thursday on concerns over China along with disappointment that there was no clear signal from the Federal Reserve on whether they would increase the fed funds rate at the FOMC meeting next month. All three major indices lost over 2.0% on the day. The Dow Jones industrials and S&P both dropped 2.1% and the Nasdaq retreated 2.8%. Investors chose to ignore key economic data about housing and unemployment that were released early in the day. Strategists and traders said the heavy selling of stocks is likely tied to programmed selling. While many investors pick and choose stocks based on a company’s business outlook, there is an entirely different class of trader who relies on technical indicators to make investment decisions.
Chinese shares have had a wild ride this week and that has raised uncertainty about Beijing’s ability to stabilize the market and its surprising devaluation of its currency, the renminbi, last week. China’s devaluation caused other countries in turn to devalue their own currencies, notably the oil rich country of Kazakhstan and the Southeast Asian manufacturing center of Vietnam.
Gap kept its fiscal year profit forecast unchanged after it confirmed it continued to struggle in the second quarter with sales gain at its Old Navy stores offset by weakness at Gap and Banana Republic. The company also says its plan to close 175 Gap stores in North America. Gap’s net income fell 34% on costs related to store closings, shipping delays earlier this year on the West Coast and the strong US dollar. Its revenue declined 2%. Walt Disney retreated on a broker downgrade. Valeant Pharmaceuticals was down after the company announced it would spend US$1 billion on Sprout Pharmaceuticals, the owner of the first female sexual performance drug approved by regulators. Netflix dropped as investors targeted the biggest winners of the year. Bank of America and Citigroup paced declines among the largest banks.
Late in the market day, Greece’s Prime Minister Alexis Tsipras announced he is resigning and has called an early election. Mr Tsipras, who was only elected in January, said he had a moral duty to go to the polls now a third bailout had been secured with European creditors. Reports suggest the election will be held on September 20.
Gold at the afternoon London fixing was up US$21.55 to US$1,147.70. Copper futures were up 1.9% to US$2.32. WTI spot crude was up 34 US cents to US$41.14. Dated Brent spot crude was down 98 US cents to US$46.18. The US dollar was down against all of its major counterparts including the euro, yen, pound, Swiss franc and the Canadian and Australian dollars. The Dollar Index lost 0.9%. The yield on US Treasury 30 year bond was down 7 basis points to 2.74% while the yield on the 10 year note declined 4 basis points to 2.08%.
Europe
The European markets dropped, extending their recent weakness. Investors continue to have concerns regarding China and oil price weakness. A looming flash election in Greece did not help morale. Losses ranged from 0.6% (FTSE) to 2.6% (MIB). The CAC was down 2.1%, the DAX lost 2.3% and the SMI retreated 1.6%.
Investors are also concerned that the Federal Reserve is moving closer to raising interest rates, after the release of the minutes from the July meeting late Wednesday. However, the Fed gave no clear signal that they would increase the fed funds rate next month. Most members judged that the conditions for tightening had not yet been achieved, but they noted that conditions were “approaching that point.”
The European Stability Mechanism disbursed €13 billion to Greece Thursday after Eurozone finance ministers approved the third bailout during a conference call. Athens reportedly honored a €3.2 billion debt repayment to the European Central Bank also on Thursday.
Commerzbank and Deutsche Bank were lower as were Crédit Agricole, Société Générale and BNP Paribas. Merck and Fresenius Medical Care retreated. Renault and Peugeot declined. In London, mining stocks climbed as gold prices continued to rebound. Randgold Resources, Fresnillo, Anglo American, Antofagasta and Glencore advanced. Royal Ahold increased following its second quarter report. Delhaize, which has agreed to merge with the company, also gained.
Germany’s producer prices dropped 1.3% on the year in July following a 1.4% drop in June. Producer prices have been falling since August 2013. UK retail sales gained 0.1% on the month, reversing a revised 0.1% drop in June.
Asia Pacific
Shares retreated broadly Thursday as risk sentiment continued to sag on growing worries about a hard landing in China. Although the yuan stabilized of late, there is still uncertainty about what measures the country’s central bank would take to support the struggling economy. The ongoing selloff in commodities seems to reflect a lack of confidence in the China’s growth prospects as the country embraces a transition to consumer-led growth and a freer floating exchange rate.
The Shanghai Composite dropped 3.4% with banks and brokerages coming under heavy selling pressure despite signs of government support. The Hang Seng lost 1.8% to an eight-month low, after Cathay Pacific and Galaxy Entertainment posted disappointing half-year results.
The Nikkei was down for a third day, this time losing 0.9% as the uncertain outlook surrounding China and the minutes from the Federal Reserve’s July meeting, which were slightly more dovish than markets had expected, helped push the yen higher against the US dollar. Export oriented stocks were mostly lower, with Suzuki Motor, Toyota, Honda Motor, Sony, Panasonic, Canon and Nikon all tumbling.
Australian shares fell sharply amid a broad-based selloff as the commodity rout deepened. The S&P/ASX closed down 1.7% while the All Ordinaries dropped 1.6%. Woodside Petroleum, Oil Search and Santos slumped after oil prices fell on Wednesday in the wake of data from the US Energy Information Administration showing an unexpected rise in crude stockpiles. Origin Energy shares plummeted after the company announced further cost and spending cuts after posting a full-year loss on asset write-downs. Miners Rio Tinto and BHP Billiton dropped after Chinese iron ore futures slumped 3% overnight. The big four banks were lower on the day.
The Kospi retreated 1.3% to hit a seven month low as foreign funds extended their selling streak to a 11th consecutive session. The Indian markets showed some resilience in early trading before succumbing to heavy selling as investors continue to fret about a hard landing in China and a fresh sell-off in Chinese equity markets. The Sensex was 1.2% lower for the day.
Global Stock Market Recap

Please remember, the value of investments and the income from them can do down as well as up. Funds that invest in overseas markets may be subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.
Looking forward*
Flash manufacturing PMIs will be released for Japan, China, France, Germany, Eurozone and US. The EU releases its flash consumer confidence survey. Canada posts July consumer price index and June retail sales.
*Note — all releases are listed in local time.