On 19 August, 2015 – Global concerns weigh on stocks

Global indices were mostly lower on global concerns and especially about the situation in China.
United States
US stocks declined in choppy trading. Minutes from the latest Federal Reserve meeting highlighted concerns over the state of the global economy and drove markets to question the likelihood that the Fed will raise rates next month. A brief boost after the release of the FOMC minutes did not last long and the indices closed with losses. The Dow Jones industrials lost 0.9% while both the S&P and Nasdaq were 0.8% lower.
Stocks briefly trimmed losses after Fed minutes showed policy makers judged conditions for higher rates have not been met yet. While that reduced speculation the Fed will raise rates at its September FOMC meeting, China’s shock devaluation continued to roil emerging-market assets and threatened to slow global growth amid a rout in commodities.
Concerns about global growth are increasing as the Fed considers the timing of its first interest rate increase since 2006. Officials said last month that while conditions for raising interest rates were approaching, they saw more room for labor market healing and need more confidence that inflation is moving toward their goal. The FOMC meeting preceded China’s surprise devaluation on August 11 that prompted some investors to scale back bets on a rate increase in September. Those odds were reduced further, with traders pricing in a 38% probability of a rate move next month.
Caterpillar and Freeport-McMoRan paced declines as raw-material and industrial shares slumped. Energy shares tumbled the most this month after an unexpected increase in US crude stockpiles sent oil prices deeper into a bear market. Target was little changed after an earlier rally after the company said that while second quarter earnings beat estimates, it is having difficulties with items being out of stock.
The Federal Reserve published the minutes of the July FOMC meeting when the committee left its fed funds range at zero to 0.25%. The FOMC wants to see more evidence the economy is in good health before they start to raise interest rates. The committee did express satisfaction with the improvement of labor market conditions but they remained concerned about the persistent sluggishness of inflation. “Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point.” They added that “almost all members” of the committee “indicated that they would need to see more evidence that economic growth was sufficiently strong” before voting to raise rates for the first time since the financial crisis.
The dollar fell, Treasuries rallied and US stocks erased a decline on Wednesday as investors took a dovish interpretation of the latest Federal Reserve meeting minutes. The dollar tumbled against the euro and the yen after minutes from the July FOMC meeting indicated that there was little consensus on when to raise borrowing costs and hinted that the dollar could hinder US inflation and growth.
Gold at the afternoon London fixing was up US$14.70 to US$1,126.15. Copper futures were down 0.4% to US$2.28. WTI spot crude was down US$2.06 to US$40.56. Dated Brent spot crude was down US$1.90 to US$46.91. The US dollar was down against euro, yen, pound, Swiss franc and the Australian dollar. However, it advanced against the Canadian dollar. The Dollar Index dropped 0.7%. The yield on US Treasury 30 year bond was down 5 basis points to 2.81% while the yield on the 10 year note declined 8 basis points to 2.12%.
Europe
Stocks retreated thanks to growing concerns over China’s economy that continued to weigh on investor sentiment. The continued decline in oil prices and the weak performance of the US markets added to the negative mood. The FTSE dropped 1.9%, the CAC declined 1.8%, the DAX lost 2.1% and the SMI was 1.4% lower.
Investors were cautious prior to the release of the most recent Federal Reserve policy meeting minutes as they watch for any guidance whether the Fed will begin raising interest rates at its September meeting.
German lawmakers approved a third bailout of €86 billion for Greece which is likely to be finalized by Eurozone finance ministers later in the Wednesday global market day. A bitter debate on the Greek deal was underway in the Dutch parliament, but lawmakers are expected to back the bailout. The three year bailout was approved by Eurozone finance ministers last Friday. Athens has to pay € 3.2 billion to the ECB August 20.
Manz climbed after the engineering company said that it has received several follow-up orders worth about €10 million for the automated assembly of notebooks and other consumer electronic devices. Both RWE and E.ON dropped. Lanxess and Infineon Technologies were down on the day. In Paris, Peugeot and Renault retreated while car parts maker Valeo also slid. Glencore sank after the miner cut its capex target for the full year. Imperial Tobacco slipped after its nine month tobacco net revenue declined 4% to £4.435 billion from last year’s £4.632 billion. Admiral Group rose after the car insurance group reported a forecast-beating 1% increase in first-half pre-tax profits. Hikma Pharmaceuticals increased after it reported that its profit before tax for the six months ended 30 June 2015 decreased by 22% to US$170 million, from US$219 million in the same period last year. Miners Anglo American, BHP Billiton and Rio Tinto dropped in London.
Asia Pacific
Stock indices were mixed Wednesday. Chinese shares recovered from steep early losses on concerns about the stability its economy. Weak commodity prices and expectations of a looming interest rate increase by the Federal Reserve also kept investors cautious prior to the release of the minutes what were published later in the global market day.
After plunging more than 6% Tuesday on fears of further yuan depreciation, the Shanghai Composite dropped as much as 5% on renewed worries about the economic outlook and continuing uncertainty related to the direction of yuan following last week’s unexpected devaluation. But with state-backed financial institutions rushing in and the People’s Bank of China offering more medium term funds to banks in a bid to calm worries of capital flight, the Shanghai Composite staged a dramatic turnaround in the final hour of trading to end the session with a gain of 1.2%. The Hang Seng retreated 1.3% following another volatile session in Chinese stock markets.
The Nikkei dropped 1.6% after July’s export growth slowed thanks to faltering demand in China and other key markets. Exports climbed an annual 7.6%, topping forecasts for a gain of 5.2% but slowing from 9.5% in the previous month. Imports slid an annual 3.2%, leaving a deficit trade balance of ¥268.05 billion for the biggest trade deficit since February.
The S&P/ASX and All Ordinaries were up 1.5% and 1.3% respectively as banks rebounded from the previous session’s plunge and oil and gas stocks recovered some ground on the back of a sharp rise in oil prices overnight. The Kospi lost 0.9% as concerns about China’s economy and the uncertainty over the timing of a Fed rate increase rattled investors. However, the Sensex added 0.4% and ending on a firm note as the rupee rebounded on dollar’s broad-based weakness and Chinese shares recovered from steep early losses following another round of cash injection by People’s Bank of China.
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*
Germany posts July producer prices and the UK reports July retail sales. In the US, July existing home sales, August Philadelphia Fed surveys and July leading indicators will be released along with the weekly jobless claims, money supply and Fed balance sheet.
*Note — all releases are listed in local time.