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Market Relief from China Short-Lived

Posted by Joseph Trevisani on Jan 13, 2016 6:17:28 PM

A surprise improvement in Chinese exports and a generally positive tone to equities in Asia and Europe were not enough to save U.S. equities and the Dow from its second 300 point loss in five days and its worst close since September last year. 

The Dow lost 364.81 points, 2.21 percent to end at 16, 151.41 despite an opening gain of about 60 points and positive equity averages in Hong Kong, Tokyo, London and Paris.  

China’s two main indexes the Shanghai and Shenzhen Composites lost 2.42 percent and 3.46 percent respectively.  It was the first close for the Shanghai Composite, China’s largest exchange, below 3,000 since last August and only the third close below that emblematic level since the index broke above there in December 2014. 

China's exports measured in U.S. Dollar terms dropped 1.4 percent in December, far less than the 8 percent forecast or November’s 6.8 percent decline. Imports slipped 7.6 percent, under the -11.0 percent prediction and the prior month's -8.7 percent drop.

In Yuan terms exports rose 2.3 percent, far better than the -4.0 percent forecast. It was the first export gain in six months. Imports dropped 4.0 percent, just half the -7.9 percent estimate and less than November’s -6.8 percent decline. 

The S&P 500 fell 2.5 percent to 1,890.28 its lowest finish since September 29th.  The Nasdaq Composite lost 3.41 percent ending at 4,526.07, its lowest close since September 29th and its worst loss since August 24th. 

Brent crude, the standard for most of the globe, briefly dipped below $30.00  for the first time since 2004, to $29.96,

West Texas Intermediate, the American standard, had added more than 3.5 percent to a high of $31.71 but the market was unable to sustain its positive tone under the flail of the equity losses. WTI ended at $30.56 just above the $30.54 open.

The yield on the 10-year Treasury fell 10 basis points to 2.09 percent.  It was the lowest return for this economic benchmark since October 27th last year. The yield on the 2-year fell 16 points to 0.9073 at the close, its lowest return since December 11th. Demand for the 10-year Treasury at the government's auction of $21 billion worth of notes was strong.  Gold gained $7.04 to close at $1,093.59.

The euro was largely unchanged versus the dollar, moving in a a range of less than a figure and closing at 1.0877, less than 20 points higer than its 1.0858 open. The Japanese Yen was even quieter, finishing at 117.68, 3 points higher than its start. The yen has climbed 2.25 percent agains the dollar  this year, largely on safe haven flows from the mainland.  

Global equities have been crushed this year by concerns that China, the source of demand for many of the world's raw materials and resources struggling to maintain growth in its slowing economy.

The Yuan devaluation engineered by Beijing began in August and has cut 5.9 percent of the Chinese currency’s value against the U.S. Dollar.

However, it is not the amount of the Yuan retreat that is troubling analysts, the euro fell more than 7 percent against the  dollar in a similar  period in 2014, but the sense that the devaluation is a de facto admission by the Chinese government that economic conditions are worse than previously known.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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