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Tuesday, January 12, 2016
Markets rise cautiously as Chinese markets steady
Dow went up 36, advancers marginally ahead of decliners & NAZ jumped up 33. The MLP index lost 3 to the 251s (seen more than a decade ago) & the REIT index fell 1+ to the 314s. Junk bond funds edged lower & the Treasuries were a little higher. Oil is flattish at multi year lows (see below) & NAZ dropped to 1086.
China’s stocks rose in volatile trading after the benchmark index
briefly fell below the 3K level as policy makers intensified efforts
to stabilize the yuan. The Shanghai Composite Index added 0.2% to 3022, after 1.3% earlier in the trading day. Technology & health-care shares led gains. The People’s Bank
of China repeatedly intervened in the offshore yuan marke, following efforts to talk
up the currency from 2 senior gov officials on Mon. After
three daily declines of at least 5% for the Shanghai index since
the start of the year, its relative strength index has fallen to 27 as
of Mon, the lowest level since Aug, & below the 30 threshold
signifying oversold conditions. The stocks gauge has slumped 15%
in 2016, the world's worst-performing global index, amid speculation
policy makers will allow the yuan to weaken & the economic slowdown is
deepening.
The
Shanghai gauge trades at 11.8X estimated 12-month earnings, down
from 19X in Jun. The MSCI Emerging Markets Index has a multiple of
10.3X. The yuan traded in Hong Kong rose 0.43% to 6.5850 a $. Chinese
officials have started to push back against views the nation’s currency
is on a one-way weakening path.
Small-business owner confidence about their economic prospects
remained lackluster last month, as businesses grapple with more
discerning consumers & brace for worsening conditions in the months
ahead. The National Federation of Independent Business
small-business optimism index, based on a survey of about 500 owners,
edged up to 95.2 in Dec from 94.8 in Nov. Economists expected 95.0. Though it recovered some ground lost in Nov, the
index is "stuck in a below average rut," according to the trade
association. The historical average for the measure is 98. 6 of the 10 components improved from a
month earlier, paced by a rebound in a measure of sales, but a sharp
drop in a gauge of future expectations nearly offset the gains
elsewhere. Owners expect their own sales to improve in the
coming months, but, outside of vehicles & health care, spending hasn't
grown strongly. A smaller share of business owners
reported higher sales while a bigger share indicated lower sales in
Dec, & the number of those flagging soft sales as their top
business problem rose. Despite steady job growth & deep savings from cheap
gasoline, an uncertain global economy & weak wage growth has kept a
lid on consumer spending & prompted more saving. At the same time,
many businesses have been reluctant to step up spending on the basic building blocks of the economy, such as machines, computers & new buildings. Looking ahead, owners said they anticipate a
deterioration in business conditions over the next 6 months amid
shrinking pricing power. As such, plans for capital investment &
inventory spending were little changed in Dec. Hiring faded last month, though 16% of businesses
surveyed--especially those in the beaten-down manufacturing
sector--suggested they still plan to add workers in the coming months.
Nearly a ¼ of respondents said they raised worker compensation in
Dec, unchanged from a month earlier, & a 20% still plan to lift
compensation in H1. That is as significant
slice of owners continue to report difficulties in finding qualified
workers to fill open jobs.
Crude oil fell 3%, heading toward $30 per barrel & levels not seen in over a decade, with analysts scrambling to cut their price forecasts & traders betting on further declines. Prices are down around 20% since the start of
the year, dragged lower by soaring oversupply, China's weakening economy & stock market turmoil, as well as the strong $r, which makes it
more expensive for countries using other currencies to buy oil. International benchmark Brent crude futures dropped
over 3% to a low of $30.43, last
seen in Apr 2004, before edging back to $30.69 (still down 86¢ from the last settlement. West Texas Intermediate (WTI) fell to a
low of $30.41, last seen in Dec 2003, before
crawling back to $30.59. Trading data showed that managed short positions in
WTI crude contracts, which would profit from a further fall in prices,
are at a record high, implying that many traders expect further falls. Traders & analysts said ballooning oversupply & China's slowing economy were the main reasons for the oil price rout. They
have also started to point at the dollar as a drag for crude.
Today's rise in stock price is hardly a significant recovery, especially after all the selling already in Jan. China remains an unknown & oil has a very gloomy outlook. The outlook by small business owners shows a lack of confidence in where the economy is going which dovetails with predictions of only 2%+ growth for GDP this year. The stock market remains on defense with Dow still down 1K this month.
...12.50 
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