On 11 January, 2016 – Another down day for stocks

Although stocks rallied early on, global indices retreated to close lower on the day. However, US shares closed mixed.

United States

Following last week’s sell-off, stocks showed a lack of direction over the course of the trading day on Monday. The major averages spent the day bouncing back and forth across the unchanged line, unable to sustain any significant moves. The major averages eventually ended the session mixed. While the Nasdaq edged down 0.1 percent, the Dow Jones industrials were up 0.3 percent and the S&P 500 inched up 0.1 percent. Traders seemed reluctant to get back into the markets with ongoing concerns about the global economy limiting any bargain hunting. The lack of major U.S. economic released on the day may also have made traders reluctant to make any significant moves.

Energy stocks including Chevron and Exxon Mobil retreated as crude oil prices continued to tumble. Mining companies including Freeport-McMoRan also slumped along with metals prices. Consol Energy and Marathon Oil stocks also declined. Irish drug maker Shire announced its long-rumored agreement to buy a rival, Baxalta, for about $31 billion in cash and stock. The boards of both companies have agreed to the deal and they expect it to close in the middle of the year. Shares of both companies declined. HCA Holdings jumped after the hospital operator raised its profit forecast. Tenet Healthcare shares also rose.

Alcoa reported a quarterly net loss after charges related to shuttering parts of its traditional smelting business. The company posted a fourth-quarter loss of $500 million or 39 US cents per share, compared with a net profit of $159 million or 11 US cents per share a year earlier.

These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was down US$1.10 to US$1,100.75. Copper futures were down 2.4 percent to US$1.97. WTI spot crude was down US$1.89 to US$31.27. Dated Brent spot crude was down US$2.16 to US$31.39. The US dollar was up against the yen, euro, Swiss franc and the Canadian dollar. However, it declined against the pound and the Australian dollar. The Dollar Index was up 0.55 percent. The yield on US Treasury 30 year bond was up 6 basis points to 2.97 percent while the yield on the 10 year note was up 5 basis points to 2.17 percent.

Europe

Despite the positive start to trading, European markets faded into negative territory and ended the day lower. Continued weakness in energy and resource stocks weighed on the markets. The FTSE was down 0.7 percent, the DAX slipped 0.2 percent and the CAC and SMI each lost 0.5 percent.

Continental retreated after the auto parts supplier reported increased sales for 2015, but added that growth would slow down in 2016. Volkswagen climbed after the company’s chief executive Matthias Mueller, on his first offici­­­­­al US visit since the scandal broke in September, apologized for cheating diesel car emissions tests. Mueller also announced that the company has a new catalytic converter in development that could potentially fix the problem. Qiagen retreated after the genetic testing specialist said fourth quarter adjusted net sales likely grew less than estimated. Both RWE and E.ON advanced.

Group­­­e Eurotunnel declined after a broker downgrade. In London, Taylor Wimpey gained after the company said that in 2015, total home completions increased 7 percent to 13,341 homes. Shire dropped after it agreed to acquire Baxalta for $18.00 per share. Electrolux was down in Stockholm. The company announced that Keith McLoughlin has notified the Board that he wishes to retire from the company. The Board has appointed Jonas Samuelson as new President and CEO effective February 1, 2016. Sports Direct retreated after suffering broker downgrades following a profit warning last week. BAE Systems advanced on a broker upgrade.

Investors continue to be plagued by a number of concerns that have carried over from the prior trading week. The Chinese stock market dropped again Monday, sliding to its lowest level in 4 years. Crude oil prices also continued to decline, falling back near 11 year lows. Investors are now bracing themselves for US corporate earnings reporting season which will unofficially kick off later today when Alcoa releases its quarterly results after US markets close.

Asia Pacific

The volatility in Chinese markets did not let up Monday. The Shanghai Composite dropped 5.3 percent. The selloff spilled over into Hong Kong, where the Hang Seng closed down 2.8 percent. Markets in the rest of Asia, however, experienced modest declines. Markets in Japan were closed for a holiday (Coming of Age Day). The government set the renminbi’s official exchange rate stronger against the dollar. The strengthening prompted a scramble for offshore renminbi in Hong Kong, where the currency is more freely traded, albeit in smaller volumes.

Chinese shares plunged further on economic concerns after inflation data was released over the weekend. Consumer price inflation remained muted at about half the government's target for 2015 in December. The CPI was down 1.6 percent from a year ago. Producer prices dropped 5.9 percent on the year for the fifth consecutive month. The PPI has been contracting since March 2012.

Australian shares were down for the seventh consecutive trading day following steep declines in key commodity prices and as investors remained wary over Beijing's ability to handle financial turmoil. Both the S&P/ASX and All Ordinaries were 1.2 percent lower on the day. BHP Billiton, Rio Tinto and Fortescue Metals Group dropped as iron ore prices slipped toward $US40 a ton. Oil & gas stocks such as Woodside and Santos were lower after oil futures fell over 10 percent last week. The big four banks were also lower.

The Kospi was down 1.2 percent on foreign fund selling after oil prices came under fresh selling pressure and Samsung Electronics indicated it may be due for another profit drop in 2016. The Sensex lost 0.4 percent.

Looking forward

India releases December consumer price index and November industrial production. The UK posts November industrial production. In the US, November JOLTS will be reported.

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.