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Friday, January 15, 2016
Markets collapse as China enters a bear market and oil is below 30
Dow tumbled 341, decliners over advancers more than 9-1 & NAZ plunged 120. The MLP index dropped a very big 10+ to 241 & the REIT index was down 4+ to the 304s. Junk bond funds sank & Treasuries rallied, seen as a safe haven. Oil went below the psychologically important 30 level & gold shot up, bid up by frightened investors.
Chinese shares fell into a bear market for the 2nd time in 7
months, wiping out gains from an unprecedented state rescue amid waning
confidence in the gov's ability to manage the markets & economy. The Shanghai Composite Index sank 3.5% to 2900, falling 21% from its Dec high & sinking below its closing low during
a $5T rout in Aug. Today's decline was attributed to
persistent investor concerns over volatility in the yuan & a report
that some banks in Shanghai have halted accepting shares of smaller
listed companies as collateral for loans. The
selloff is a setback for pres Xi Jinping's gov, which has
been intervening to support both stocks & the yuan after the worst
start to a year for mainland markets in at least 2 decades. As policy
makers in Beijing fight to prevent a vicious cycle of capital outflows & a weakening currency, the resulting financial-market volatility has
heightened concern that the deepest economic slowdown since 1990 will
worsen.
While
China’s high concentration of individual investors makes the $5.7T market notoriously volatile, losses in the Shanghai Composite
have become one of the most visible symbols of investor concerns over
the health of the economy. It’s been a wild
ride for Chinese investors over the past 12 months. After cheerleading
by state media helped fuel an unprecedented boom in mainland shares in
H1-2015, the market crashed over the summer as
regulators failed to manage a surge in leveraged bets by individual
investors. A state-sponsored market rescue campaign sparked a 25%
rally in the Shanghai Composite thru Dec, but those gains were
wiped out toay as the index closed at its lowest level since late
2014. Losses this year were
fueled by a controversial circuit-breaker system, which authorities
scrapped in the first week of Jan after finding that it spurred
investors to rush for the exits on big down days. The Shanghai Composite
has dropped for 3 straight weeks, the longest losing streak since
Oct, & is down 18% this year.
Consumer confidence rose in Jan to the highest level in 7
months as low inflation helped support households, whose outlook for
wage gains remained subdued. The University of Michigan preliminary sentiment index climbed to
93.3, the highest since Jun, from 92.6 in Dec. The
projection called for 92.9. The gauge averaged
92.9 last year, the best annual performance since 2004. Last month’s advance was paced by those making more than $75K a year. Americans’ projected inflation rate over the next year dropped to the
lowest level since 2010, helping to give consumers added buying power.
Workers are still waiting for more convincing signs of stronger wage
growth, which has remained elusive even as the jobless rate lingers at a
more than seven-year low. “Consumer optimism is now dependent on the continuation of an
extraordinary low inflation rate,” Richard Curtin, director of the survey, said. The current conditions index, which measures Americans' perception of
their personal finances, declined to 105.1 from the prior month’s
108.1 & the gauge of expectations 6 months from now increased to 85.7, the highest since Jun, from 82.7. Americans expected the inflation rate in the next year will be 2.4%, the lowest since Sep 2010, compared with 2.6% in Dec. Over the next 5-10 years, they project a 2.7% rate of price growth, after 2.6% in the prior month.
Factory production declined in Dec for a 2nd month as a
stronger $ & softer US & global growth pinch manufacturers. Output
at factories dropped 0.1%, matching the previous month's
decline, figures from the the Federal Reserve. Total
industrial production, which also includes mines & utilities, fell a
larger-than-forecast 0.4%. Factories have struggled in
recent months as a stronger dollar makes American-made goods more
expensive for overseas customers, & recent data show domestic demand
is having trouble picking up the slack. Heightened concerns that global
growth is weakening, including a slowdown in China, may extend
manufacturing’s woes.
Figures
from the Federal Reserve Bank of New York showed manufacturing’s
struggles extended into 2016. The bank’s gauge of business activity in
the region contracted in Jan at the fastest pace since Mar 2009. Manufacturing,
which makes up about 75% of total production, was forecast to be
unchanged in Dec. Total
industrial production was projected to fall 0.2%. Capacity utilization, which measures the
amount of a plant that is in use, declined to 76.5% last month
from 76.9%. The decrease was largely due to less utility demand.
Capacity at power plants dropped to 73.2% in Dec, the lowest
since records began in 1972.
Times are ugly for the stock market. Even good economic news is not getting attention. Dow is already down a startling 1.4K in Jan & the month is only ½ over. Approaching a long weekend, more selling should be expected in the PM. Nobody wants to be long for 3 days.
....1.33 
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