UK and Europe
The Chinese stock market, the Chinese currency and oil prices keep falling, taking investor confidence down with them.
Global equities saw heavy declines on Thursday in what has been one of the worst opening weeks of the year for stock markets in recent memory. The price of US crude oil plummeted to the lowest in 12 years.
The FTSE 100 fell below 5900 with the China-sensitive commodity sector still leading the declines. The German DAX came just shy of 9800 with concerns over Germany’s declining export advantage to China still driving the losses. Stocks markets came off their lows following the news that Chinese regulators had suspended the circuit breaker system after it was triggered for a second time in four days.
The circuit breaker system has been criticised because the 7% level at which markets are halted appears to be acting as a target for sellers. The positive initial reaction in developed markets would suggest the circuit breaker suspension in China could act to calm Chinese markets rather than just spur even bigger daily price declines.
While it’s disturbing that Chinese authorities don’t appear to have a grip over the regulation of the domestic stock market, it’s not necessarily a problem for US and European markets. Before the summer of 2015, Chinese stocks were almost completely uncorrelated with stocks in developed markets.
The bigger source of uncertainty for Europe is over the People’s Bank of China’s continued devaluation of the yuan. It’s probably inevitable that China’s exchange rate needed to fall to reflect its slowing economy, but it’s the speed of the current devaluation that has investors unnerved. A slower pace of yuan devaluation would at least give investors and European exporters a chance to adjust to the new normal.
Marks and Spencer (L:MKS) shares dropped, erasing initial gains after a disappointing Christmas sales period promoted the long-time coming exit of Chief Executive Marc Bolland. Food sales were strong, even outpacing fellow upscale grocer Waitrose, but general merchandise sales down 5% was the straw that broke the camel’s back for Mr Bolland’s six year tenure as M&S boss.
US
US stocks opened significantly lower on Thursday following a crash across global markets triggered by another halt in Chinese stocks after less than half-an-hour of trading. The Dow Jones opened lower by over 300 points with NASDAQ seeing the worst losses thanks to another fall in Apple and other large US tech company shares.
The biggest fear for Apple investors has always been the first annual fall in iPhone sales. Apple shares (O:AAPL) fell under $100 following media reports and supplier production data which prompted brokers to cut forecasts for iPhones orders.
FX
The US dollar was mostly lower on Thursday but more as a function of temporary strength in other major currencies than weakness in the dollar. The Japanese yen and Swiss franc were in demand as safe havens while the euro rallied following surprisingly strong German factory orders.
The Fed raising rates while the BOE is signalling inaction for a prolonged period, coupled with uncertainty surrounding a possible British exit from the Eurozone has sent Pound-dollar exchange rate below the 2015 April lows to a fresh 5 ½ year low.
Commodities
Oil prices are sinking alongside Chinese equities over the same concern about China’s economy. Iran banning Saudi-made goods has been the latest souring of relations between the two nations that could kill any hope of OPEC even agreeing on an output quota, let alone a production cut. Crude longs gave up the ghost after we fell through theDecember lows in both Brent and WTI and will probably only try and step in again at $30 Brent.
Gold has continued its run as one of the top performing assets this week with the price touching 9-week highs above $1,100 per oz. Investors are seek a haven from the avalanche of selling across equity and oil markets.
Marred by the panic in Chinese equities, the price of copper slid back beneath $2 per lb to the lowest since 2009.
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