UK & Europe
UK and European stocks resumed their New Year slide after another drop in the value of the Chinese yuan reignited fears of a currency war while crude oil dropped to a new 11-year low. Adding fuel to the fire, North Korea tested a nuclear weapon and privately surveyed Chinese service sector data slumped to a 17-month low.
The FTSE 100 slipped back beneath 6100 to a 9-day low dragged down by China-sensitive financial and commodity stocks including standard Chartered which lost over 4%. The German DAX dropped below 10,100 led lower by a dive the shares of automakers that saw BMW lose over 4.5%.
The extension of the selling ban in China until a new permanent rule replaces it helped the Shanghai Composite close higher. The continuation of the ban removes the spectre of an imminent wave of selling by large shareholders, the fear of which was partly to blame for the large sell-off on Monday.
The worry for Europe and the ECB is that China and the PBOC beat them at their own game of currency devaluation to boost exports.
BAE Systems PLC (L:BAES) topped the FTSE 100, rising over 2% as investors sought out defence stocks after North Korea’s nuclear weapon test. Marks and Spencer (L:MKS) shares were flying in the face of generally gloomy sentiment, up over 1% ahead of its Christmas sales report on Thursday.
US
US stocks had a weak start on Wednesday with the Dow Jones opening 150 points lower, taking the benchmark index below 17,000 amidst mixed economic data ahead of the release of Federal Reserve meeting minutes.
December saw the highest number of private US jobs created all year according to ADP. The addition of 2000 manufacturing jobs also dumbfounded markets after notably weak manufacturing sentiment gauges. ISM manufacturing data for December missed expectations, falling more than expected to 55.3 from 56 in November.
Shares of Walt Disney Company (N:DIS)saw the dark side of $100. Shares dropped below the big figure for the first time since late September after having failed to make to new highs above $120 surrounding Q3 earnings and the release of the latest Star Wars film.
FX
The US Dollar was mixed on Wednesday following strong unemployment data but weak service data and comments from the Fed’s Fischer which didn’t stray too far from previous Fed communication ahead of meeting minutes.
The offshore yuan sank to its lowest since trading began in 2010 and its widest spread to the onshore rate on record after the PBOC lowered Wednesday’s midpoint to below the previous day’s close. The central bank isn’t being shy about its intension to lower the yuan’s value and has probably been encouraged to do so at an even quicker pace after the latest weak manufacturing data.
The British pound traded lower as the UK services PMI saw a slightly bigger fall than expected from the previous month with a reading of 55.5 in December.
Commodities
Concerns that a Sunni-Shia divide across national boundaries in the middle East caused by the stand-off between Saudi Arabia and Iran makes an OPEC output even less likely has added to the already very bearish sentiment towards crude oil. The price of Brent crude dropped to a new 11-year low while WTI approached 7-year lows even as the first shipments of US oil made their way to Europe.
The price of gold broke to its highest since November 16, just short of $1090 per oz as the flare up in the Middle East, falling stocks, Chinese economic woes and not to mention the north Korean nuclear bomb test sent investors to safe-havens.
Sub-par Chinese services data sent industrial metals including copper down alongside the price of oil on expectations of slowing demand from the world’s biggest consumer.
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