On 23 February, 2016 – Global markets tumble
Crude oil prices put downward pressure on energy stocks.
United States
Stocks declined Tuesday, ending three days of gains as commodity prices retreated and some investors took profits. The price of crude oil retreated. Investors remained worried about China as the country cut the value of its currency against the US dollar yet again. The pullback follows a week and a half of a rebound among major stock indices, which tumbled in January and early February amid concerns about a steep drop in oil prices and the pace of global economic growth. The Dow Jones industrials were down 1.1 percent, the S&P lost 1.2 percent and the Nasdaq was 1.5 percent lower.
Investors were watching developments in China, where the People’s Bank of China announced it had cut its daily rate between the renminbi and the dollar more than expected. The weakening renminbi was a major cause of market turmoil in August 2015 as investors worried that it signaled a slowdown in China’s economy.
February consumer confidence declined to 92.2 from 97.8 in January and the lowest level since July. Consumers attributed worries about deteriorating business conditions and turbulence in the financial markets for their drop in confidence. However, January existing home sales were up 0.4 percent to an annual rate of 5.47 million.
Fitbit tumbled after the company issued a weak forecast for 2016. United Technologies was down after the company rejected a merger offer from Honeywell. Steel stocks also came under pressure after Monday's strong gains. There was considerable weakness among banking stocks with Comerica, Zions Bancorp and JP Morgan posting losses. Railroad, chemical and computer hardware stocks were weak. Depot shares jumped after the home improvement chain’s fourth quarter sales rose nearly 10 percent. Toll Brothers reported better than expected revenue for its most recent quarter.
Crude oil prices came under heavy pressure Tuesday after Saudi Arabia’s oil minister said the big oil producer is “not banking on (supply) cuts”. The comments from Ali al-Naimi threw cold water on hopes that major producers may act to stabilize the price amid a glut of global supply. “All I am saying is, we are not banking on cuts,” Mr Naimi said at the IHS CERAWeek conference. News last week that Saudi Arabia, Russia and two other producers would agree to a production “freeze” if others, such as Iraq and Iran, agreed to join brightened sentiment.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$10.35 to US$1,221.35. Copper futures were down 0.6 percent to US$2.10. WTI spot crude was down US$1.55 to US$31.84. Dated Brent spot crude was down US$1.29 to US$33.40. The US dollar was up against the euro, pound and the Canadian and Australian dollars. However, it declined against the yen and Swiss franc. The Dollar Index was up 0.1 percent. The yield on US Treasury 30 year bond was down 3 basis points to 2.58 percent while the yield on the 10 year note slipped 4 basis points to 1.72 percent.
Europe
Stocks retreated Tuesday after climbing to three week highs on Monday. Sentiment was deflated by weak crude oil prices as they again failed to sustain recent gains. Investors were also disappointed by weak German business sentiment and US consumer confidence data. The FTSE was down 1.2 percent, the CAC declined 1.4 percent, the DAX retreated 1.6 percent and the SMI lost 1.9 percent.
Energy stocks were under pressure and they sold off further in late trading after comments from both Iran and Saudi Arabia. According to reports, Iran called the Saudi-Russian crude oil output freeze plan "ridiculous". Saudi oil minister Ali bin Ibrahim Al-Naimi also stated Tuesday that production cuts will not happen. Mining stocks declined following a disappointing report from BHP Billiton. The company also slashed its dividend. However, gold stocks were up due to the safe haven status of the precious metal.
According to Bank of England Governor Mark Carney, the BoE is not making a judgment about the potential outcome of the Brexit referendum. Carney said the monetary policy committee has room for additional stimulus. If the economy needs more stimulus, the BoE will make purchases of a variety of assets according to Carney’s testimony to the Treasury Select Committee.
ThyssenKrupp dropped a day after Moody's cut its credit rating further into junk territory. Both RWE and E.ON weakened. Automakers Volkswagen, Daimler and BMW finished lower. Thales advanced. The technology firm focused on the aerospace and defense markets raised its dividend and its mid-term revenue forecast. Danone advanced after the yogurt maker forecast further improvement in sales and profit this year after posting solid results for the last three months of 2015. Both Technip and Total retreated. In London, London Stock Exchange Group surged after it confirmed that it is in "detailed discussions" with Germany's Deutsche Börse for an all-share merger deal. Deutsche Börse gained. BHP Billiton tumbled after it slashed its interim dividend after posting a huge half-year net loss. InterContinental Hotels Group increased after posting higher full year profit and announcing a $1.5 billion special dividend. Persimmon gained after the company reported that its fiscal 2015 profit before tax increased to £629.5 million from£ 467 million last year.
Germany’s Ifo business confidence indicator retreated for the third straight month to 105.7 in February from 107.3 in January. This was the lowest reading since December 2014. Fourth quarter gross domestic product was confirmed at 0.3 percent on the quarter.
Asia Pacific
Most stock indices surrendered early gains to end lower Tuesday after oil prices lost ground in Asian trading and the yen picked up strength on worries over the possible British exit from the European Union. China's People’s Bank of China cut its daily reference rate for the yuan by the most in six weeks.
The Shanghai Composite declined 0.8 percent on profit taking after rallying more than 2 percent the previous day. Focus returned to the yuan after the PBoC weakened the currency by the largest margin in six weeks amid heightened "Brexit" concerns. The Hang Seng retreated 0.3 percent.
The Nikkei was down 0.4 percent in choppy trading as the dollar gave up its earlier gains against the yen. Exporters declined. Sharp, which is reportedly in the final phases of deciding between rival rescue offers, rallied. Panasonic advanced as well. Takata dropped after news of another major recall. Sojitz gained on a Nikkei report it would acquire a 50 percent stake in Singapore's Keystone Holdings.
The S&P/ASX was down 0.4 percent while the All Ordinaries lost 0.3 percent as oil prices retreated and the Chinese yuan witnessed its biggest fall in six weeks. The big four banks retreated. Oil stocks closed broadly lower after oil futures pulled back in Asian deals after climbing on Monday. BHP Billiton gained despite posting a huge half-year net loss of A$5.67 billion and slashing its interim dividend. Rio Tinto advanced while Fortescue Metals Group retreated. Caltex Australia dropped. Qantas Airways declined despite the companies posting solid first-half results.
The Kospi slipped 0.1 percent as caution crept in ahead of a meeting of G20 finance ministers and central banks in Shanghai slated for Friday and the annual meeting of China's top legislature starting next month. The Sensex lost 1.6 percent as banking stocks resumed their sell-off and the rupee weakened to a fresh 30-month low against the US dollar on continued foreign fund outflows.
Global Stock Markets
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*
The UK posts CBI distributive trades for February. In the US, January new home sales will be released.
*Note — all releases are listed in local time.