On 18 August, 2015 – Concerns over China drag stocks lower

Shares were lower Tuesday. Angst about the renewed drop in the Shanghai Composite combined with investor wariness before the release of Federal Reserve minutes from its July FOMC meeting left investors hesitant to take on risk.
United States
Stocks were modestly lower in thin summertime trading Tuesday. Walmart’s shares slid after the retailer cut its earnings forecast for the year, while renewed concerns over the strength of China’s economy weighed on world markets. The Dow Jones industrials edged down 0.2%, the S&P lost 0.3% and the Nasdaq retreated 0.6%.
Walmart dropped after warning that its annual profit will probably fall short of previous estimates, in part because of a strong dollar. The company also reported a drop in quarterly earnings as it spent more on wages and overhauling US stores. Builders started work on single-family homes at the fastest pace since 2007, driving up shares in Lennar, D.R. Horton, Toll Brothers and other companies tied to the housing market. July housing starts were up 0.2% to an annual rate of 1.21 million. Freeport McMoRan retreated as copper prices tumbled. Home Depot advanced after boosting its outlook. Shares of TJ Maxx and Marshalls’ operator TJX Companies were up after the company reported a 6.1% increase in quarterly earnings. Ross Stores advanced as well.
Copper led a slide in commodities on speculation the global fuel glut will persist and China’s economy will face further headwinds. The declines came a week after China’s first major currency devaluation since 1994 surprised global investors and fueled concerns that authorities are struggling to combat a slowdown in the world’s second-largest economy.
Gold at the afternoon London fixing was down US$7.35 to US$1,111.45. Copper futures were down 1.5% to US$2.29. WTI spot crude was up 51 US cents to US$42.38. Dated Brent spot crude was down 19 US cents to US$48.55. The US dollar was up against the euro and the Australian dollar. It was virtually unchanged against the yen and Swiss franc. However, it declined against the pound and Canadian dollar. The Dollar Index was up 0.2%. The yield on US Treasury 30 year bond was up 4 basis points to 2.86% while the yield on the 10 year note was up 3 basis points to 2.20%.
Europe
Stocks retreated Tuesday. The sharp drop in the Shanghai Composite and weakness in commodity prices weighed on investor sentiment. Investors also were cautious before the release of minutes from Federal Reserve’s most recent meeting Wednesday as traders look for guidance as to when the Fed plans to begin raising interest rates. The FTSE retreated 0.4%, the CAC was down 0.3%, the DAX lost 0.2% and the SMI slipped 0.1%.
The Greek government relaxed restrictions on sending money abroad by individuals and tuition fee payments by students. Citing legislation published by the Finance Ministry late Monday, a Greek daily reported on its website that the government made seven changes to capital controls that included allowing the transfer of €500 a month abroad along with a ceiling on the lump sum amount that parents can send to their children studying abroad to cover tuition fees and other expenses. Greeks now can open bank accounts, but only for paying bills and loan repayments.
Wirecard surged after the financial services company confirmed its full-year EBITDA outlook after reporting a 27% increase in second-quarter earnings after tax. Fresenius and Fresenius Medical Care advanced as did Merck. RWE dropped after the utility suffered several downgrades. E.ON was lower. Technip and Total also retreated. Car parts market Valeo and Michelin were lower. Home builder Persimmon declined after the company reported an increased profit for the first half of the year. Mining stocks were under pressure thanks to concerns about China that led to weakness in metal prices. Luxury goods companies including Swatch and Richemont were under pressure, due to the renewed concerns over China.
Asia Pacific
Asian shares gave up early gains to end mostly lower Tuesday as the yuan resumed its decline against the dollar and Chinese shares came under heavy selling pressure despite news of a fresh cash injection and positive home price data. Investors also looked ahead to the minutes from the Federal Reserve’s July policy meeting during the Wednesday global market day.
The Shanghai Composite plunged 6.2% on the day amid concerns about economic growth. Chinese shares reversed a brief positive open to end deep in the red despite signs of recovery in the housing market and a large cash injection into the financial system.
Earlier in the day, the People’s Bank of China offered 120 billion yuan worth of seven day reverse repurchase agreements in a routine money-market operation, reflecting growing concerns about capital outflows following its recent move to weaken the yuan. The yuan weakened against the dollar despite the PBoC setting the midpoint rate a tad higher than the previous day’s fix. The Hang Seng lost 1.4%, extending its slide for the third straight day.
Japanese shares reversed early gains to end down 0.3% as the sell-off in China fueled worries about its ability manage a slowdown. Oil refiner JX Holdings and Inpex tumbled as oil prices hit a new six-year low on increasing worries about a global glut of crude supplies in the face of sluggish demand. Toshiba was flat on a Nikkei report that the industrial conglomerate will add seven outside directors as part of a board revamp following an accounting scandal. Fast Retailing and Softbank retreated while Fanuc gained. Banks rose broadly, with Sumitomo Mitsui Financial, Mitsubishi UFJ Financial and Mizuho Financial all advancing.
The S&P/ASX lost 1.2% while the All Ordinaries was down 1.1%. The indices were dragged down by banks after global ratings agency Fitch Ratings said a further increase in capital in the country’s four largest banks was likely over the medium term. Banks and miners declined. The minutes of the Reserve Bank of Australia’s August board meeting indicated board members’ optimism about the economy. The favorable monetary policy and very low interest rates were cited as main factors in the country’s economic recovery. The minutes noted that Australia’s economy is adjusting to a weaker currency and the end of the mining investment boom.
The Kospi slid 0.6% as foreign investors continued to sell amid continued fears over yuan devaluation and the uncertainty surrounding the timing of the Federal Reserve’s first interest rate increase. The Sensex slipped 0.2% as a big sell-off in Chinese equities, a deadly bomb explosion close to a shrine in the center of Thailand’s capital, Bangkok, and lingering worries over the weak monsoon prompted investors to lock in some profits at higher levels. India’s summer rainfall deficit has widened to 10% and is likely to end the season with a 12% deficit next month according to the Indian Meteorological Department.
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*
Japan posts merchandise trade balance for July. In the US, July consumer prices will be released. The Federal Reserve publishes minutes from the July 28 and 29 FOMC meeting.
*Note — all releases are listed in local time.