On 14 January, 2016 – US stocks gained after recovering from an early slide
Stocks in Asia and Europe tumbled but US shares staged a rally as crude prices climbed on the day.
United States
US stocks advanced as investors snapped up battered energy and other shares, while financials rose after upbeat results from JPMorgan. Energy companies led the rally, climbing along with the price of crude oil. The gains came a day after the market had its worst drop since September. The Dow Jones industrials were up 1.4 percent, the S&P gained 1.8 percent and the Nasdaq jumped 2.0 percent.
The 10 sectors in the S&P advanced with energy recording the biggest gain. The Williams Companies, Exxon Mobil, Chevron and Marathon Oil were higher on the day. JPMorgan Chase was up after the bank reported earnings that were better than expected. Best Buy retreated after it reported a drop in sales during the holiday season. The company also said it expected a wider drop in fourth quarter revenue, partly on weak sales of mobile phones and personal devices. GoPro dropped a day after the company disclosed plans to eliminate about 100 jobs. The move came after the company’s fourth quarter sales fell far short of its expectations.
The recovery accelerated while Federal Reserve Bank of St. Louis President James Bullard answered questions from reporters following a speech in which the policy maker, who was a vocal proponent of raising interest rates, sounded a more cautious tone. He said the latest decline in oil prices may delay the return of inflation to the central bank’s 2 percent target.
Jobless claims for the most recent week increased 7,000. December import and export prices continued to decline.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up 25 US cents to US$1,088.40. Copper futures were up 1.1 percent to US$1.98. WTI spot crude was up 62 US cents to US$31.10. Dated Brent spot crude was up 72 US cents to US$31.03. The US dollar was up against the euro, yen, pound and the Canadian dollar. However, it declined against the Swiss franc and Australian dollar. The Dollar Index was up 0.3 percent. The yield on US Treasury 30 year bond was up 5 basis points to 2.89 percent while the yield on the 10 year note was up 3 basis points to 2.09 percent.
Europe
European markets dropped Thursday, after US and Asian stock indices tumbled. However, stocks pared their losses in late trading after US shares bounced back from early weakness. The US rebound occurred after crude oil prices began to climb. Markets in Europe still finished in the red Thursday, but well off their session lows. The FTSE was down 0.7 percent, the CAC dropped 1.8 percent, the DAX retreated 1.7 percent and the SMI lost 1.3 percent.
According to minutes of the European Central Bank’s December meeting, general council members were divided on the size of the interest rate reduction and they explored the possibility of further easing in future. On December 3, the ECB cut its deposit facility rate by 10 basis points to a record low of minus 0.30 percent. The minutes said some members were cautious regarding a deeper rate cut as they felt it would increase the side effects over time. Some members expressed a preference for a 20 basis point cut in the deposit facility rate mainly with a view to strengthening the easing impact of this measure and reflecting the view that to date, no material negative side effects on bank margins and financial stability had emerged.
The Bank of England’s monetary policy committee maintained its record low interest rate of 0.5 percent and its asset purchase ceiling at £375 billion. The MPC observed that downside risks to global growth and the recent decline in oil prices could depress the near term inflation outlook. The vote was 8 to 1. Ian McCafferty has been the sole dissenter since August, seeking a 25 basis points rate increase, suggesting that the majority of MPC is in no hurry to tighten monetary policy.
Deutsche Bank, Commerzbank, BNP Paribas and Société Générale retreated. Automakers including BMW, Daimler and Volkswagen were lower. In Paris, Renault tumbled after French authorities raided several of its facilities in connection with an emissions probe. Peugeot and Valeo also were lower. Total and Technip advanced. In London, Tesco surged after it reported holiday sales. Burberry gained after the company said its retail sales increased 1 percent underlying in a challenging environment for luxury. Restaurant Group plunged after the company stated that the trading environment for many consumer facing businesses has been tougher in recent months than it was earlier in 2015. This has caused like-for-like sales growth to trend lower and accordingly the firm is more cautious than previously on the outlook for 2016. Intercontinental Hotels Group dropped on a broker downgrade. Anglo American, Glencore, BHP Billiton and Rio Tinto advanced along with Royal Dutch Shell, BP, BG Group and Tullow Oil. Cartier owner Richemont, which reported third quarter sales, retreated.
Asia Pacific
Most shares declined Thursday after US stocks tumbled overnight amid the relentless slide in oil prices and concerns over growth as the Federal Reserve's latest "Beige Book" survey of economic conditions pointed to sluggish US economic growth. The heavy sell-off in the US rekindled a flight from risk, proving Wednesday's recovery across Asia untenable.
However, the Shanghai Composite reversed early losses to end 2.0 percent higher. As part of efforts to prop up prices, the Shanghai and Shenzhen stock exchanges said they would closely monitor the selling activities by major shareholders and take action where appropriate. The Hang Seng slid 0.6 percent.
The Nikkei plummeted 2.7 percent to hit a 3-1/2 month low as weak oil prices and global growth worries spurred demand for the yen. Disappointing machinery orders data also sapped investors' appetite for risk. Cabinet Office data showed that November core machinery orders dropped 14.4 percent from the previous month. Orders fell for the first time in three months underscoring businesses' reluctance to ramp up spending. Energy explorer Inpex, JX Holdings and Japan Petroleum declined after Brent oil prices briefly slipped below $30 a barrel for the first time since April 2004 on Wednesday on mounting worries about the global economy and on speculation Iranian shipments will soon climb. Apple supplier Alps Electric and Sharp retreated in the wake of brokerage downgrades
The S&P/ASX and All Ordinaries tumbled 1.6 percent and 1.5 percent respectively. The big four banks along with miners declined. Wesfarmers slid after Home Retail Group confirmed that it was in advanced discussions for the potential sale of Homebase to the Australian retailer, which owns the Coles supermarket chain. December unemployment rate edged down to 5.8 percent from an upwardly revised 5.9 percent in November. Employment was 1,000 lower.
The Kospi was 0.8 percent lower, dragged down by tech and commodity-related shares. The Bank of Korea cut its forecasts for economic growth and inflation while keeping interest rates unchanged at a record low for the seventh straight month, in line with expectations. The Sensex declined 0.3 percent.
Looking forward
Australia posts November home loan data. The Eurozone releases November merchandise trade. In the US, December producer price index, retail sales and industrial production will be reported along with the January Empire State manufacturing survey and preliminary January consumer sentiment.
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.