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.

AMJ (Alerian MLP Index tracking fund)

CLG16.NYM...Crude Oil Feb 16...29.87 Down ....1.33  (4.3%)

GCF16.CMX...Gold Jan 16......1,093.90 Up ...20.00 (1.9%)

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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.

China Stocks Enter Bear Market, Erasing Gains From State Rescue

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.

Consumer Sentiment in U.S. Rose in January to Seven-Month High

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.

Factory Production in U.S. Falls on Less Motor Vehicle Output

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.

Dow Jones Industrials

stock chart


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