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China Data And Dollar Volatility Strike Nervy Markets

By CMC Markets (Jasper Lawler)Market OverviewMay 04, 2016 10:10
uk.investing.com/analysis/china-data-and-dollar-volatility-strike-nervy-markets-200127690
China Data And Dollar Volatility Strike Nervy Markets
By CMC Markets (Jasper Lawler)   |  May 04, 2016 10:10
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UK and Europe

Woeful economic news and weak bank earnings put stock market bears in charge on Tuesday. Weak manufacturing data from China and the UK, downgraded forecasts for UK and Eurozone growth as well as the Reserve Bank of Australia cutting interest rates to ward off deflation all point to a weaker economic outlook.

UK investors have brought with them the mantra of sell in May and go away after returning from the long holiday weekend. The FTSE 100 slid to a three-week low after the slowdown in Chinese manufacturing has prompted weakness in heavily-weighted mining shares. Anglo American (LON:AAL) lost double-digits on the implications for China’s renewed economic malaise on commodity demand. Volatile oil prices and nerves ahead of quarterly results from Royal Dutch Shell (LON:RDSa) meant the oil and gas sector was a drag on the UK benchmark equity index.

Stock markets have recovered all of their losses from the start of the year but sentiment is still damaged from the sell-off. While markets can still push higher, the beginning of May is a seasonal weak point that already appears to be triggering some profit-taking.

More plummeting profits from major European banks including HSBC (LON:HSBA), UBS (NYSE:UBS), BNP Paribas (PA:BNPP) and Commerzbank (DE:CBKG) sparked a sell-off in the banking sector with RBS (LON:RBS) losing over 3.5%.

The drop in HSBC profits was better than expected and has seen shares fare better than counterparts in Europe. Despite the volatility in emerging markets, the relatively faster economic growth in Asia continues to cushion HSBC against the problems facing the investment banking divisions within US and European-focused banks.


US

US stocks slumped on the open with the Dow Jones losing over 200 points after weak auto sales number added to a weak economic outlook in China, the UK and Europe.

Shares of Apple (NASDAQ:AAPL) opened higher in an attempt to snap an eight-day losing streak that has weighed on the confidence in the tech-sector and wider markets.

Shares of US-listed automakers including GM (NYSE:GM), Ford (NYSE:F) and Fiat (NYSE:FCAU) were mostly lower after a mixed set of auto sales numbers.

Halliburton (NYSE:HAL) shares dropped after it announced a big annual loss caused by massive write-downs of its oil and gas infrastructure. The oil and gas services company said it would cut capex further after officially cancelling its deal with Baker Hughes (NYSE:BHI).

Pfizer (NYSE:PFE) shares traded higher after the pharmaceutical giant beat earnings estimates and raised its full-year guidance, offering some optimism for growth in the company without its scrapped merger with Allergan.

FX

The day started with new multi-month lows for the dollar index and corresponding highs in the euro, British pound and the yen. But dollar losses were reversed after the Fed’s Dennis Lockhart suggesting June was a ‘live meeting’ triggered short-covering at oversold levels.

The weak US first quarter growth figures on top of a cautious statement from the Federal Reserve has seen market expectations for a June rate hike fall to 12%.

Sterling came off its highs after UK manufacturing data saw a surprise contraction in April for the first time in three years. The UK economy remains worryingly dependent on the service sector, which is going to have to work a lot harder to keep UK economic growth afloat. Services as a component of estimated first quarter GDP were strong, but this could change if the much-vaunted Brexit-induced slowdown kicks in closer to the referendum.

The Australian dollar was the biggest FX faller on the day, taking commodity currencies including the Canadian dollar with it after the Reserve Bank of Australia surprised markets with a 25 basis point rate cut.

Commodities

The price of gold has retreated from a 15-month peak above $1300 per oz while silver has pulled back from $18 per oz. The strength in precious metals was in large part thanks to US-dollar weakness so the reversal in the dollar has been matched in the metals.

News of OPEC member countries ramping up production and a pullback from overbought levels meant the price of oil was weak all day but dollar weakness saw early losses extended.

DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.

No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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China Data And Dollar Volatility Strike Nervy Markets
 

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China Data And Dollar Volatility Strike Nervy Markets

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