Tuesday, March 8, 2016

Markets drop on weak China data and lower oil prices

Dow fell 131, decliners over advancers almost 4-1 & NAZ sank 47.  The MLP index tumbled 9+ to the 263s in a very volatile market & the REIT index slid back 1 to the 322s.  Junk bond funds were lower &Treasuries rallied.  Oil retreated to the 36s after its run (see below) & gold climbed higher.

AMJ (Alerian MLP Index tracking fund)

CLJ16.NYM....Crude Oil Apr 16...37.49 Down ....0.41  (1.1%)

GCH16.CMX...Gold Mar 16.....1,267.10 Up ...3.90 (0.3%)

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China's benchmark stock index eked out a gain in the final minutes of trading as speculation of buying by state-backed funds helped offset plunging exports.  The Shanghai Composite Index erased a loss of 3.1% to close 0.1% higher.  Transportation & raw-material companies declined after data showed China's outbound shipments sank last month by the most since May 2009.  The worse-than-expected decline in outbound shipments underscores the Communist Party's challenge to support growth as capital flows out of the country & debt climbs to an unprecedented level.  Policy makers last weekend raised their target for money supply & said they will allow a record deficit to meet an economic expansion target of 6.5-7% for 2016.  State-backed funds intervened to bolster the stock market last week ahead of annual policy meetings.

The Shanghai Composite has risen for 6 days, the longest stretch of gains since Jul.  For the year, the gauge is down 19%, the worst performance among global benchmark indices.  The Hang Seng China Enterprises Index slid 1.4%, while the Hang Seng Index declined 0.7%.  Exports slumped 25.4% in Feb in $ terms from a year earlier, while imports declined 13.8%, leaving a trade surplus of $32.6B.  The week-long Chinese new year holidays fell in Feb this year, closing factories & curbing shipments.  Transportation companies led declines among a gauge of industrial shares.

China Stocks Rebound Shrugging Off Export Slump

German industrial production jumped by the most in more than 6 years in Jan, a sign that strong domestic demand may be helping to underpin output even as external trade cools.  Production, adjusted for seasonal swings, climbed 3.3% from the prior month after retreating a revised 0.3% in Dec, according to the Economy Ministry.  That's the biggest increase since Sep 2009 & the first gain in 3 months.  It was stronger than all projections which had called for 0.5% growth.  While German consumers continue to spend robustly & investment, & construction bounced back from Dec, manufacturers still face a number of challenges this year.  A China-led slowdown in emerging markets is slowing exports & market volatility has dealt a blow to business confidence & factory orders.  Construction jumped 7% from Dec & investment goods output rose 5.3%.  Consumer goods production increased 3.7% & manufacturing increased 3.2%.  Industrial output rose 2.2% from a year earlier, again beating the highest economist estimate.  “After a weak spell in second half 2015, the manufacturing industry had a very good start in the new year,” the ministry said.  “Overall, a moderate recovery in industrial activity is expected in the first quarter.”

German Industrial Production Surges by Most Since 2009

Crude oil fell from the highest level in 2 months on expectations that reports will show US inventories rose last week to an 8-decade high.  Stockpiles probably increased for a 4th time according to a survey.  Ecuador's foreign ministry said Latin American producers will meet on Mar 11 to discuss oil prices, while Russia said major suppliers may meet within weeks.  China's crude imports rose to a record in Feb, while product exports fell to the lowest in 9 months.

US benchmark oil has rallied more than 40% since reaching a 12-year low on Feb 11 amid speculation a proposal to freeze production will trim a global glut.  A meeting among major producers may be held sometime between Mar 20 & Apr 1.  China increased crude imports by 19% in Feb to 31.8M metric tons from a month earlier.  That's equivalent to about 8M barrels a day, the highest daily average on record.  Oil-product exports slid a 2nd month to 3M tons.  US stockpiles rise even as production falls:

Oil Falls From Two-Month High as U.S. Supplies Seen Growing

The stock market was vastly overbought & profit selling finally is taking over.  The China data was weak, but hardly a big surprise.  Oil is also overbought & traders are cashing in on profits made.  Fundamental problems of oil, too much production & bloated inventories, show no sign of correcting anytime soon.  Dow is back below 16K & in the red  for Q1 & YTD

Dow Jones Industrials


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