On 07 January, 2016 – Stocks continue to retreat

China once again sent global stock indices lower after the Shanghai Composite and the yuan tumbled.

United States

Stocks tumbled once again triggered by events in China. The steep losses on the day dragged the major averages down to their worst closing levels in three months. The Dow Jones industrials were down 2.3 percent, the S&P declined 2.4 percent and the Nasdaq tumbled 3.0 percent. The sell-off came as Chinese stocks showed another substantial decrease, with the Shanghai Composite Index plunging by more than 7 percent in brief trading. Chinese trading was halted for the second time this week, which came after the People's Bank of China set the yuan's daily reference rate at the lowest level since April of 2011. The China Securities Regulatory Commission has subsequently suspended its circuit breaker system amid concerns the system is contributing to volatility.

Finish Line was sharply lower after the athletic footwear and apparel retailer reported a wider than expected third quarter loss. Printer and PC maker HP also posted a steep loss after a broker downgrade. Zumiez advanced after the action sports equipment retailer raised its fourth quarter guidance. Ryerson, Allegheny Technologies and U.S. Steel plummeted. Significant weakness was also visible among airline stocks. KB Home posted a steep loss after reporting weaker than expected fourth quarter results. Internet, biotechnology, telecom, computer hardware and banking stocks also moved notably lower on the day, reflecting broad based weakness.

These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$14.95 to US$1,106.35. Copper futures were down 3.1 percent to US$2.02. WTI spot crude was down 66 US cents to US$33.31. Dated Brent spot crude was down 45 US cents to US$33.78. The US dollar was up against the pound and Australian dollar. It was virtually unchanged against the Canadian dollar. However, the US currency was down against the euro, Swiss franc and the yen. The Dollar Index dropped 1.3 percent. The yield on US Treasury 30 year bond was down 1 basis point to 2.98 percent while the yield on the 10 year note slipped 2 basis points to 2.15 percent.

Europe

Stocks tumbled Thursday due to the renewed turmoil in China. A sharply lower yuan fix pulled China's Shanghai Composite down 7 percent within the first 30 minutes of trading. This in turn tripped the circuit breaker system and a second day-long trading suspension in four days. Concerns over China precipitated another global share meltdown. However, China announced hours after its early close that it has suspended its recently implemented circuit-breaker system. Global markets began to recover some ground after the announcement, on hopes that a full session of trading will give buyers an opportunity to take advantage of low prices.

Mining and resource stocks were hit hard by concerns over the health of the Chinese economy. Energy stocks were under heavy pressure as crude oil prices sank to an 11-year low. However, energy stocks pared their losses after oil prices began to rebound. The FTSE lost 2.0 percent, the CAC was down 1.7 percent, the DAX dropped 2.3 percent and the SMI was 1.9 percent lower.

Automakers Daimler, BMW, Volkswagen, Peugeot and Renault weakened. ThyssenKrupp and Salzgitter retreated. Commerzbank and Deutsche Bank were lower. In Paris, Technip and Total closed down. In London, mining stocks continued to decline on worries over the Chinese economy. Anglo American, Glencore, Antofagasta and BHP Billiton tumbled. BP, BG Group, Royal Dutch Shell and Tullow Oil retreated. Marks & Spencer advanced after the company announced that Marc Bolland intends to retire in 2016. He will be succeeded by Steve Rowe. Somero Enterprises surged after the manufacturer of concrete leveling, contouring, and placing equipment said it now sees full-year earnings before interest, tax, depreciation and amortization (EBITDA) materially ahead of current market expectations.

The December Eurozone economic confidence and business sentiment strengthened with the economic sentiment index climbing to 106.8 from 106.1 in November. Eurozone's jobless rate fell for a third straight month in November to its lowest level in more than four years. The seasonally adjusted unemployment rate dropped to 10.5 percent in November, which was the lowest level since October 2011. Germany's factory orders grew more than expected in November despite a fall in demand from the euro area. November manufacturing new orders were up 1.5 percent from the prior month.

Asia Pacific

Asian stocks fell for a fourth day Thursday after another sell-off in China triggered the second day-long suspension in four days. A sharply lower yuan fix pulled China's Shanghai Composite down 7 percent within the first 30 minutes of trading, prompting a closing of mainland stocks. Ripple effects from the Chinese plunge was felt across Asia with no market sparred from the sell-off.

After markets closed early, the Chinese securities regulator issued new rules that restrict share sales by listed companies' major shareholders. Large shareholders who want to sell stakes of more than 1 percent in listed companies have to disclose their plans to the exchanges 15 trading sessions in advance. The Hang Seng lost 3.1 percent after China allowed the yuan slip to a five-year low against the US dollar. The People’s Bank of China attributed the yuan's move to speculators and said it would maintain the currency at an equilibrium level.

The Nikkei was 2.3 percent lower as shares fell for a fourth day to its lowest level in more than three months. Exporters bore the brunt of the selling, with Canon, Panasonic, Honda Motor and Sony all tumbling. Toshiba declined on a report it will exit the television and home appliance business in India. Sony and Fujifilm Holdings dropped on a Nikkei report they are mulling a bid to acquire Toshiba's medical systems unit. Energy explorer Inpex and JX Holdings declined.

The Australian market extended losses for a fifth straight session as investors sold stocks across the board. The S&P/ASX was down 2.20 percent while the All Ordinaries was 2.1 percent lower. Miners BHP Billiton, Rio Tinto and Fortescue Metals Group retreated along with oil & gas producer Santos, Woodside Petroleum and Oil Search. The big four banks dropped. Gold miner Newcrest Mining and Evolution Mining climbed after gold hit a seven-week high on safe-haven buying.

Seoul shares hit four-month lows and the won touched a four-month low against the US dollar as the turbulence in China's stock market and heightened geopolitical risks stemming from North Korea's widely reported hydrogen bomb test rattled investors. The Kospi dropped 1.1 percent. The Sensex followed global markets lower. The index dropped 2.2 percent.

Looking forward

Australia posts December retail sales. Both France and Germany report November industrial production and merchandise trade balance. The UK releases November merchandise trade data. Canada posts its December labour force survey. In the US, the December employment situation will be released.

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.