On 19 January, 2016 – Investors react to Chinese growth data

Markets in Asia and Europe rallied on China’s growth but those in the US did not at day’s end. 

United States

US shares were mixed Tuesday after losing ground in afternoon trading after strong gains earlier in the day. Stocks struggled to close with meager gains, narrowly avoiding another down day. The Dow Jones industrials were up 0.2 percent while the S&P edged up 0.05 percent. The Nasdaq retreated 0.3 percent.

Utilities and telecommunications companies were the biggest gainers. Energy stocks fared poorly as the price of oil took another tumble. Tiffany sank after the company reported weak holiday sales for jewelry. Morgan Stanley was higher after the company said it turned a profit in the fourth quarter. Morgan Stanley reported better results from its wealth management business and investment banking. Goldman Sachs, which will report its earnings Wednesday, also advanced. Shares of the CME Group, the parent of the Chicago Board of Trade, also gained. Delta Air Lines gained after it reported a bigger fourth quarter profit because of falling fuel prices. Delta said it expected fuel to be even less expensive in the first quarter. UnitedHealth Group was higher after it posted stronger than expected results in the fourth quarter.

While investors fret over the impact that China’s slowdown will have on global growth, the International Monetary Fund cut its world growth outlook as the commodities slump and political gridlock push Brazil deeper into recession, plunging oil prices hobble Mideast crude producers and the rising dollar curbs US prospects. The fund also said risks to the global outlook remain tilted to the downside, with the world facing three big adjustments — the emerging-market slowdown, China’s shift to growth driven less by exports and manufacturing and the Fed’s gradual exit from ultra-low interest rates.

These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was down US$2.95 to US$1,086.25. Copper futures were up 1.4 percent to US$1.97. WTI spot crude was down US$1.02 to US$28.40. Dated Brent spot crude was up 30 US cents to US$28.85. The US dollar was up against the pound and the yen. It was down against the euro, Swiss franc and the Canadian and Australian dollars. The Dollar Index slipped 0.04 percent. The yields on US Treasury 30 year bond and 10 year note were up 1 basis point to 2.82 percent and 2.05 percent respectively.

Europe

The European markets rebounded from their lowest level in 13 months Tuesday. Investors bought stocks on hopes that further stimulus measures will be coming from China after its GDP report. Although growth slowed, the data were not as bad as many had feared. Energy and mining stocks were among the best performing stocks. However, shares of Italian banks were down sharply after the European Central Bank requested more information on their bad loans. The news also negatively affected banks in Spain and Portugal. The FTSE was up 1.7 percent, the CAC gained 2.0 percent and both the DAX and SMI added 1.5 percent.

Bank of England Governor Mark Carney said in a London speech that there is no set timetable for an interest rate increase and warned of the effects of a slackening Chinese economy on Britain. Since last summer, progress has been insufficient to warrant a tightening of monetary policy. He noted that UK growth has slowed and inflation weakened due to the oil price collapse. He expects inflation to remain very low for longer than anticipated.

Henkel advanced after appointing Hans Van Bylen as its CEO. RWE and peer E.ON climbed. Fresenius Medical Care and Fresenius gained. In Paris, Crédit Agricole increased after saying it is considering selling stakes in over three dozen regional banks to bolster capital and help finance its dividends. Renault and Peugeot also were higher. In London, Prudential was up after appointing a new head for its UK business. Rio Tinto advanced after it reported that global iron ore shipments for the fourth quarter improved 11 percent to 91.3 million tonnes. Unilever was higher despite the company’s warning of high volatility in 2016. British Land gained after it issued its third quarter trading update. The company said that it had another strong quarter and it confirmed its dividend.

December Eurozone inflation rose to 0.2 percent on the year from 0.1 percent in November. German economic confidence dropped for the first time in three months in January as investors turned cautious. The ZEW Indicator of Economic Sentiment dropped to 10.2 in January from 16.1 in December. UK inflation rose marginally as expected to an 11-month high in December on higher air fares while lower food prices limited the pace of price growth. Consumer prices rose 0.2 percent on the year.

Asia Pacific

Stocks advanced across the board after China's GDP data pointed to no hard landing. China's economy grew 6.9 percent in 2015, just short of the government's 7 percent target and its slowest pace in 25 years, putting pressure on policymakers to unveil more fiscal and monetary measures. For the fourth quarter, GDP growth eased to 6.8 percent from a year earlier while industrial production was up 5.9 percent in December from a year ago, down from 6.2 percent in November and expectations for a moderation to 6.0 percent. Retail sales and fixed-asset investment also slowed at the end of the year fueling speculation of more government stimulus. The Shanghai Composite rallied 3.2 percent on hopes for new economic stimulus. The Hang Seng added 2.1 percent.

The Nikkei added 0.5 percent after swinging between gains and losses before finishing higher for the first time in four days. Economy minister Akira Amari's comments that recent stock market volatility has been caused by external factors also supported underlying sentiment. Exporters Canon, Honda Motor, Sony and Panasonic gained after the dollar rose against the yen. Sharp rallied on a Nikkei report that Innovation Network Corp. of Japan may raise its investment offer for the struggling electronics maker to more than ¥300 billion. Nintendo jumped on reports it will launch its videogame service for smartphones in March 2016. Softbank retreated to extend Monday's loss.

Australian shares erased early losses after the release of Chinese GDP data. Both the S&P/ASX and the All Ordinaries closed 0.9 percent higher. The Kospi gained 0.6 percent as investors weighed the likelihood of more stimulus measures from China, South Korea's largest trading partner. The Sensex snapped a three day losing streak and was up 1.2 percent.

Looking forward

Germany posts its December producer price index and the UK reports its labour market report for December. In the US, December consumer price index will be released. In Canada, the Bank of Canada announces its monetary policy decision and issues its monetary policy report.

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.