On 13 January, 2016 – Stocks were mixed globally
Shares in Asia and Europe rallied on rising oil prices. However, US shares tumbled after crude inventories swelled in the latest week.
United States
Stocks were sharply lower in afternoon trading Wednesday as the price of oil wavered again. Crude prices erased early gains after a disappointing report on US crude inventories. Investors also weighed the latest company earnings and economic news from China. Consumer discretionary stocks were among the biggest decliners. The Dow Jones industrials dropped 2.2 percent, the S&P lost 2.5 percent and the Nasdaq tumbled 3.4 percent. The three indices are now in correction territory. Treasuries surged amid signs that demand for the relative safety of bonds is rising. Brent crude dipped below $30 for the first time since 2004 on speculation that Iranian shipments will soon climb.
Shares of several oil and gas companies fell sharply as crude prices wavered. Williams, Consol Energy and Valero Energy retreated. General Motors gained after the automaker raised its dividend and added to its stock repurchase program. However, investors sold Ford and auto parts supplier BorgWarner after both companies issued earnings outlooks that fell short of expectations. Railroad operator CSX and supermarket chain SuperValu were down after the companies reported their latest quarterly results. MetLife jumped after the company said it planned to sell or spin off a large part of its life insurance business. Shares in consumer discretionary shares plunged with losses heaviest in Amazon.com and Netflix. Health-care shares sank while financial services stocks in the S&P fell to the lowest level since May 2014.
The Federal Reserve published its Beige Book in preparation for its FOMC meeting to be held on January 26 and January 27. The report was prepared by the Philadelphia Fed. It was prepared prior to the market selloff currently underway. According to the Beige Book, the U.S. economy continued to give off mixed signals with improvements in the labor market and consumer spending offset by the drag from a strong dollar and low energy prices. The Boston Fed described economic activity in its region as upbeat while the New York and Kansas City districts described it as essentially flat. Most others described activity as modest. But while the labor market continued to improve and most districts reported "slight to moderate" growth in consumer spending, other sectors showed further strain. Most manufacturing sectors weakened and "several districts reported the strong dollar's negative impact on demand." Most areas of the energy sector "struggled further" as oil and gas prices continued to drop. The Cleveland and Kansas districts reported that warmer-than-usual temperatures "increased already abundant inventories of oil and gas and kept downward pressure on already low energy prices." Nearly all districts said overall price pressures were minimal, and just two districts reported an acceleration in wage gains.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$2.75 to US$1,088.15. Copper futures were down 0.4 percent to US$1.95. WTI spot crude was up 16 US cents to US$30.60. Dated Brent spot crude was down 60 US cents to US$30.26. The US dollar was up against the pound, Swiss franc and the Canadian and Australian dollars. However, it declined against the euro and yen. The Dollar Index was down 0.1 percent. The yield on US Treasury 30 year bond was down 4 basis points to 2.84 percent while the yield on the 10 year note was down 6 basis points to 2.06 percent.
Europe
Stocks advanced Wednesday after investor sentiment received a boost from easing concerns over China after its merchandise trade data came in better than anticipated. The Asian markets also climbed as China's yuan stabilized. But the European markets began to pare their gains shortly before US markets opened and continued to retreat until the close. The reversal in crude oil prices contributed to the late weakness. Early strength in crude quickly reversed after the release of the U.S. inventory data. The FTSE was up 0.5 percent, the CAC gained 0.3 percent and the SMI added 1.0 percent. However, the DAX retreated 0.2 percent.
RWE and E.ON climbed. However, automakers BMW, Daimler, Volkswagen, Peugeot and Renaults tumbled. Technip and Total advanced. In London, Tullow Oil advanced after the company said it is looking at additional opportunities to reduce capital expenditures further. J Sainsbury was lower after the company reported a slight decline in third-quarter total retail sales and like-for-like sales, including fuel, while market share increased. In Milan, Banco Popolare SC and Banca Popolare di Milano climbed, boosted by merger talks.
Eurozone November industrial production declined the most in 15 months as warm weather reduced energy output, diluting hopes that output contributed to growth in the final quarter of the year. Industrial production decreased 0.7 percent on the month when it grew by a revised 0.8 percent.
Asia Pacific
Asian stocks posted strong gains for the first time in eight days as China's yuan stabilized and merchandise trade data were much better than anticipated. A rebound in oil prices during the Asian trading session after seven days of declines also helped spur some bargain hunting.
The Shanghai Composite reversed early gains to end sharply lower despite Beijing's efforts to support the yuan and prop up a market that is down nearly 20 percent since December 23. The index dropped 2.4 percent after rising as much as 1.2 percent in early trading. The index closed below the 3,000 point level for the first time since August 26 last year. The Hang Seng added 1.1 percent after data showed China's exports rose for the first time since June. China's exports unexpectedly rose 2.3 percent in December from a year earlier in yuan terms, after a 3.7 percent drop in the previous month. Imports dropped an annual 4 percent, an improvement over the previous month's 5.6-percent fall. However, in US dollar terms, the picture was not quite as rosy. Exports were down 1.4 percent from a year ago while imports sagged 7.6 percent. Both were much better than consensus estimates.
The Nikkei jumped 2.9 percent, snapping a six day decline. The yen's weakness against the dollar and other rivals as well as an uptick in oil prices in Asian trading boosted investor sentiment. Exporters closed broadly higher, with Canon, Panasonic, Sony, Honda Motor and Mazda Motor rising. Sharp advanced after the Nikkei business daily reported that South Korean conglomerate Samsung Electronics is exploring buying into an LCD panel venture between Sharp and Taiwan's Hon Hai Precision Industry. Both Fast Retailing and Softbank rallied. Banks Mitsubishi UFJ Financial and Sumitomo Mitsui Financial advanced. Airline ANA Holdings and Japan Airlines soared on expectations lower oil prices will trigger a similar fall in jet fuel prices.
The S&P/ASX rallied 1.3 percent while the All Ordinaries added 1.2 percent. The big four banks rose as did oil & gas producer Oil Search and Santos. Miners were mixed with BHP Billiton and Fortescue Metals declining while Rio Tinto advanced. The Kospi was up 1.3 percent on institutional buying. The Sensex gyrated throughout the trading day, finally ending with a 0.7 percent gain.
Looking forward
Australia reports December labour force survey. The Bank of England announces its monetary policy decision and the European Central Bank publishes minutes from its December 3, 2015 meeting. In the US, December import/export prices and weekly jobless claims, money supply and Fed balance sheet 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.