Top Global Market Movers 2 Minute Drill: What Moved Markets Each Day

Get Forex buy/sell signals directly to your email and by SMS.
To learn more click here

Credit, liquidity related central bank policy issues, taper speculation, China default threat- quick, critical review for traders of stocks, forex commodities and more

The following is a partial summary of the conclusions from the fxempire.com  weekly analysts’ meeting in which we share thoughts about what’s driving major global asset markets. The focus is on global stock indexes as these are the best barometer of overall risk appetite and what drives it, and thus of what’s moving forex, commodities, and bond markets.

It’s a quick summary of last week’s international stock market action and what drove it. It’s our starting point for our follow up articles on:  

  • Lessons For The Coming Week And Beyond
  • Coming Week Top Market Movers
  • Related Special Features: This week – an update on the state of the rally and whether last week’s selloff was the start of something worse or a normal correction.

MONDAY: Weak China data, surprise loss at DB, thin trade with US markets closed send Asian, European markets lower

 

Asia

Asian indexes closed mixed, with Japan (-0.6%) and China (Shanghai -0.7%, Hong Kong -1%) both down hard. Australia’s S&P/ASX 200 fell 0.2%. The big negative news was from China, which was hit by:

  • Another spike in money market rates as the seven-day repo rate increases to 6.4% from 5.2% on Friday
  • A batch of downbeat data, as fixed asset investment and industrial production fell below both previous and forecasted results. Q4 annualized GDP growth was 7.7%, above forecasts but still below Q3’s 7.8%, and is now at its lowest growth rate since 1999. Retail sales were down on a monthly and annual basis.  rose 13.6% on the year, in line with forecasts, but down from 13.7% the previous month. Year to date retail sales were up 13.1% on the year, in line with expectations and up from 13% in November. For the year, retail sales growth fell to 13.1% from 14.3% in 2012.

 

Europe

European indexes traded mixed, overall inching lower in thin trade on Monday. Britain’s FTSE 100 closed +0.1% while France’s CAC 40 shed 0.1%. Germany’s DAX dropped 0.3 %, led by a 5.4 % plunge in Deutsche Bank, after reporting an unexpected loss in the fourth quarter. The report caused shares in financial companies across Europe to underperform the wider market and weigh on indexes, as DB is seen as a bellwether of the sector, which is already looking weak after downbeat earnings at major U.S. banks such as Morgan Stanley and Goldman Sachs the prior week. Funds continue to flow into European equities on tentative signs of improvement, although actual economic data thus far has not been great. Traders looked ahead to Thursday’s big batch of European PMIs for new clues about the region’s growth.

US

US stock markets were closed for Martin Luther King’s Birthday.

 

TUESDAY: US, China Central Bank Policy Speculation Dominates Global Markets

 

Asia

All major Asian indexes up (Japan +1%, Hong Kong +0.5%, China +0.9%, India +0.2%, Australia +0.65%, Korea +0.52%) led by Japan and China, on a combination of:

  • Strengthening of USD on a report from the WSJ’s John Hilsenrath (who is seen by many as the Fed’s unofficial mouthpiece) that the Fed could increase the speed of the taper (was big for Japan because it drove the USDJPY down).
  • PBOC moves to boost liquidity (good for China, as well as Australia and other major suppliers). See here for details

 

Japan stocks’ rise was aided by two additional factors: The BOJ was holding a policy meeting and was expected to maintain its huge stimulus program, and expectations of strong Japanese corporate earnings.

 

Europe

European indexes hit 5.5 year highs overall, on optimism stemming from Unilever’s earnings beat, Remy Cointreau SA’s forecast for a strong year ahead based on anticipated China sales, and a solid German ZEW sentiment report, and the PBOC’s easing as noted above for Asia. Together these positives outweighed other weak earnings reports, as well as the above hints of possible accelerated cuts in Fed stimulus.

US

US stocks closed mixed on a light news day, with the DJIA particularly pressured by earnings disappointments from some of its major components and declines by IBM (IBM), J&J (JJ) and Goldman Sachs (GS), (these alone accounted for about half of the Dow’s decline) as well as by Travelers (TRV), Wal-Mart (WMT), Caterpillar (CAT), GE (GE) and Verizon (VZ). The increased risk of a faster taper, raised by the Hilsenrath article noted above, also didn’t help.

 

WEDNESDAY: Bullish PBOC Liquidity Injection, Bearish Earnings Picture Brings Mixed, Minor Index Moves

 

Asia

Most major Asian indexes modestly higher (Japan +0.2%, Hong Kong +0.2%, China +2.2%, India +0.4%), Shanghai up strongly on continued relief rally optimism and momentum from yesterday’s gains following the PBOC’s injection of liquidity into money markets. Shanghai has been in a 6 week downtrend due mostly to liquidity and credit concerns. The PBOC is expected to add more funds in operations tomorrow in order to further insure against illiquidity ahead of the Chinese New Year holiday.

 

Europe

The leading European indexes closed mixed with minor lower or higher closes, overall European indexes were little changed on the day

Although 68% of earnings reports thus far have beaten or met forecasts, expectations for the rest of Europe’s earnings season are fading as companies such as ABB and Royal Dutch Shell have issued profit warnings.

 

US

Stocks traded in a narrow range to close mixed. IBM, the Dow’s second largest component, beat analysts’ earnings expectations, but still dropped 3.2% on Q4 revenue that fell even more than expected; Coach’s earnings and revenue also came in under expectations.

Earnings haven’t been amazing, but the market has avoided a more pronounced selloff because of low expectations, says U.S. Bank Wealth Management, adding that investors are overlooking Q4 earnings to focus on this year’s profits where the picture is more encouraging. We’d add that earnings have simply been upstaged by developments regarding China, Fed taper speculation, and the emerging markets selloff.  See here for details on the state of earnings season.

 

THURSDAY: China Woes Dominate, Outweigh Positive EU and US data and earnings.

 

Asia

Major Asian indexes were mixed, mostly down hard (Japan -0.8%, Hong Kong -1.5%, China -0.5%, India +0.2%), on 3 big negative developments in China.

  1. A big miss in the China HSBC flash manufacturing PMI which fell to 49.6, down from 50.5 in December and lower than the 50.3 economists expected (any print below 50 represents a contraction). This was the first contraction in factory activity in 6 months. On the (relatively) right side, this may prove to be a monthly anomaly. Bill Adams of PNC Financial Services wrote that Chinese statistics are less accurate around the New Year holiday, and so he warns about reading too much into this month’s data. This was the most direct and immediate cause of Thursday’s ‘made in China” selloff that would go beyond Asia to the Europe and US.
  2. An FT.com report that Chinese authorities are racing to prevent a default of a $500 million high-yield investment trust loan repayment issued by the Industrial & Commercial Bank of China (ICBC), the failure of which could irreparably damage confidence (and market value) in China’s huge pool of similar wealth management products (WMPs). For reasons we discussed last week here, any serious WMP default risks becoming China’s very own “Lehman Moment”:

 

If the market for WMPs collapses, then Chinese local governments, banks, both shadow and official, and the businesses invested in them could all go down too…The ICBC isn’t some back-alley shadow bank. It’s China’s largest state-owned bank. It sold this WMP to raise funds for coal-miner Shanxi Zhenfu Energy Group. However as China’s economy slows and commodity prices fall, many miners are unable to repay the debt that funds the payments on that WMP. It’s as if Bank of America announced it wouldn’t pay up on some debt it sold. How would you feel if you about the safety of your investments or the stability of your bank?

 

While this item didn’t get as much coverage, it’s potentially far more serious.

 

  1. 3.       The SEC issued a six month ban on the Chinese branches of the Big Four accounting firms from auditing US listed companies, essentially labeling their opinions (on which investors and lenders base their decisions) unreliable, because these auditors “willfully” failed to give U.S. regulators the audit work papers of certain Chinese companies under investigation for accounting fraud (Reuters here). All four firms say they’ll appeal the ruling and continue to serve all their clients without interruption.

 

Europe

EU European indexes were solidly lower, most down roughly 0.7% – 1%. Despite mostly positive French, German, and EU flash manufacturing and services PMIs, stocks were pressured lower by a double-digit fall in Nokia and disappointing Chinese developments (noted above), which hurt optimism about global growth prospects and earnings.

The downbeat Chinese news sent the AUDUSD through the 8800 support, while the PMI data out of Europe was much more upbeat, and drove EUR/USD higher by more than 100 points to 1.365 by mid-morning GMT.

 

US

As in Europe, US indexes plunged on the China news noted above in the Asia section for this day. The reduced activity increased worries that China’s already well-known slowdown was not going as gradually as expected (and hoped), and the major WMP loan default threat noted above raised unpleasant memories of what followed from defaults by Lehman Brothers in 2008 and Dubai World in late 2009. Predictably, the selloff in risk assets like stocks, especially in riskier emerging market shares and currencies, came with a rally in US government debt. Disappointing existing homes sales and flash US manufacturing PMI data didn’t help either.

FRIDAY

Asia

Asian indexes were mixed but mostly down hard (Japan -1.9%. Hong Kong -1.3%, China +0.6%, India -1.1%) for the second straight day from ongoing risk aversion from Thursday …. Ironically, the source of most of the recent risk aversion, mainland China was the big exception, with Shanghai bouncing up 0.60% on PBOC cash injections if $42 bln this week, dropping the 7 day repo rate 77bps to 4.61%. For some reason Hong Kong stocks behaved more like the rest of Asia.

Europe

European indexes dropped hard (DAX -2.48%, CAC -2.79%, FTSE 100 -1.62%, IBEX -3.6% MIB -2.3%) for their deepest single day plunge in seven months on Friday, erasing what was left of the January rally, on profit taking spurred by a combination of:

  • EU stocks being overbought and thus vulnerable to a pullback on any negative news
  • Growing anxiety about EU countries and companies with exposure to Latin America
  • Continued concerns that the China slowdown may come too hard, too fast

To no one’s surprise, Spanish stocks suffered the most, due to their recent fast run-up and South-America exposure.

Virtually all major European indexes broke below their 10 week (aka 50 day) moving averages and fell decisively out of their double Bollinger band buy zones,

US

Like their European counterparts, the big 3 US indexes suffered their worst slides (Dow -1.92%, S&P -2.07%,  Nasdaq -2.15%) since June, continuing Thursday’s selloff in an extension of yesterday’s selling, due mostly to the same factors cited above that pounded European equities.

The Dow fell 318 points (-2%) in its worst weekly performance since May 2012, the S&P tumbled 2% to finish below 1800, and the Nasdaq (-2.2%) fared the worst of the big three indexes; the Russell 2000, which earlier this week hit a new record high, sank 2.4%, and the Dow Transports fell more than 4%.

In addition, weakness in emerging markets and their currencies has increased fears of a potential currency crisis while continued yen strength has posed a headwind to carry trades, which supported much of last year’s rally in global equities.

The selling stirred up interest in volatility protection, sending the VIX to its biggest one-day pop since April.

Buying in Treasurys sent the benchmark 10-year note’s yield to a two-month low of 2.704%; gold inched up $2 (+0.2%) to settle at $1,264.30.

With the Fed’s first policy meeting of the year scheduled for next week, the question being asked is whether jittery markets will prompt the central bank to postpone the taper.

 

Index

% Change

YTD %

DJIA

-3.5

-4.2

Nasdaq

-1.7

-1.2

S&P 500

-2.6

-3.1

Russell 2000

-2.1

-1.7

 

 

To be added to Cliff’s email distribution list, just click here, and leave your name, email address, and request to be on the mailing list for alerts of future posts.

 

 

DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER.

 

Want to read more articles like this one?
Enter your e-mail address and read FX Empire content directly from your inbox.
 
We value your privacy. Your e-mail address will not be shared.
About: Cliff Wachtel

Author of the award winning book, The Sensible Guide To Forex: Safer, Smarter Ways to Survive and Prosper from the Start (Wiley, 2012), Cliff Wachtel, CPA, has been serving as investment advisor, analyst, writer, trainer, trader and investor for over 30 years in a variety of markets and asset classes throughout the world. He’s a widely read contributor on a variety of financial media, including seekingalpa.com, businessinsider.com, forexfactory.com, forexstreet.com, econintersect.com, and other media too, with or without with his explicit permission.

  View all of Cliff Wachtel's Articles    
Share Your Thoughts: Post a Comment


Your email address will not be published.


include_once( __DIR__ . "/request_context.php");