Monday, 20 October 2014

Stocks could fall another 50 percent or more

Do stocks have much further to fall? The Wall Street Journal's Brett Arends asks that question.

Despite Friday’s boomlet, the Dow Jones Industrial Average still closed the week down 1%, and the broader S&P 500-stock index ended also down 1%. The Dow and the S&P are down 5.2% and 6.2%, respectively, from their record highs...

Overall, the MSCI World index has fallen 10% in just a few short weeks, after hitting a record on Sept. 2...

So how much further might the market fall?

If this is merely a regular correction in the course of a regular economic expansion, the answer may be: Not much further.

Corrections of 5% to 20% are a normal part of the stock market...

Still, there are reasons for concern based on trends prevailing even before the recent turmoil.

If the global economy were turning upward, the prices of industrial commodities, such as copper and oil, would typically have been rising. Instead they were falling.

Meanwhile, if the future were rosy, long-term interest rates, a barometer of economic growth, would have been expected to go up. Instead, they have been tumbling. (The yield on 30-year Treasury bonds dipped below 3% amid last week’s market turmoil, and yields on the benchmark 10-year note were at mid-2013 levels.)

And some analysts have become quite bearish.

While the majority of big names on Wall Street still officially see the market ending the year higher, unofficially more and more are wondering if the long-awaited correction is at hand...

To these critics, stock prices could easily fall 50% from current levels, and could conceivably fare even worse...

The gloomiest prognosticator, Scottish stock-market historian and analyst Russell Napier, suggests that Wall Street might yet fall by 75% or more before the carnage is over.

Saturday, 18 October 2014

Markets rise, US housing starts jump

Markets finally saw a significant rebound on Friday. The S&P 500 rose 1.3 percent and the STOXX Europe 600 jumped 2.8 percent, the biggest rise in almost three years.

The US 10-year Treasury yield rose 4 basis points to 2.20 percent, the German 10-year bund yield rose 4 basis points to 0.86 percent but the Greek 10-year bond yield fell 87 basis points to 7.93 percent.

A remark by European Central Bank executive board member Benoit Coeure on Friday suggesting that the ECB will start “within the next days” to purchase assets in the new stimulus programme helped boost investor sentiment.

So did strong US economic data on Friday. Housing starts jumped 6.3 percent in September, building permits rose 1.5 percent and the preliminary Thomson Reuters/University of Michigan consumer sentiment index for October increased to 86.4, the highest since July 2007.

Friday, 17 October 2014

S&P 500 flat as US industrial production rises

Markets stabilised somewhat on Thursday. The STOXX Europe 600 fell 0.4 percent but the S&P 500 ended flat after recovering from a 1.5 percent fall earlier in the session.

The US 10-year Treasury yield rose 2 basis points to 2.16 percent and West Texas Intermediate rose 1.1 percent.

US economic data on Thursday were mostly positive. Industrial production rose 1.0 percent in September. Initial claims for jobless benefits decreased by 23,000 to 264,000 in the week ended 11 October.

The Philadelphia Federal Reserve’s factory index dipped to 20.7 in October from 22.5 in September and the National Association of Home Builders/Wells Fargo housing market index fell to 54 in October from 59 in September.

In China, a report on Thursday showed that banks extended 857.2 billion yuan in new loans in September, up from 702.5 billion yuan in August. Aggregate financing stood at 1.05 trillion yuan in September compared with 1.4 trillion yuan a year ago.

Thursday, 16 October 2014

Markets fall on growth worries

Markets fell on Wednesday.

The STOXX Europe 600 plunged 3.2 percent but the S&P 500 recovered from an early tumble to finish 0.8 percent down for the day.

The US 10-year Treasury yield fell four basis points to 2.16 percent and oil declined as Brent crude fell 1.5 percent to a four-year low.

Allianz SE chief economic adviser Mohamed El-Erian thinks that “market volatility can be expected to continue in the days and weeks to come”.

Investors' concerns appear to be focused on weak economic growth, especially after a report today showed that US retail sales fell 0.3 percent in September.

Other US data showed that the Federal Reserve Bank of New York’s Empire State Index fell to 6.2 in October from an almost five-year high of 27.5 in September and producer prices fell 0.1 percent in September.

Nevertheless, the Federal Reserve's Beige Book published on Wednesday reported that the US economy expanded at a "modest to moderate" pace across much of the nation in recent weeks.

Elsewhere in the world, reports on Wednesday showed that China's inflation rate fell to 1.6 percent in September from 2.0 percent in August, Japanese industrial production fell 1.9 percent in August, more than the 1.5 percent decline initially estimated, but the UK unemployment rate fell to 6.0 percent in the three months to August, the lowest level since the three months to October 2008.

Wednesday, 15 October 2014

Oil plunges, eurozone industrial production falls

Stock markets managed to stabilise somewhat on Tuesday, with the S&P 500 gaining 0.2 percent.

Oil plunged though, Brent crude falling 4.2 percent and West Texas Intermediate falling 4.6 percent to extend their bear markets.

The US 10-year Treasury yield fell 7 basis points to 2.21 percent.

However, in Europe, Greece's 10-year bond yield jumped 31 basis points to 7.01 percent on Tuesday after euro-area finance ministers clashed with the nation’s leaders over their desire to sever a bailout program.

Moving in the opposite direction, Germany's 10-year bund yield fell six basis points, touching 0.837 percent, the lowest level since Bloomberg started collecting the data in 1989.

Helping to push bond yields down on Tuesday were weak eurozone economic data.

Eurozone industrial production fell 1.8 percent in August as capital goods output fell 4.8 percent.

In Germany, the Economy Ministry reduced its 2014 economic-growth forecast to 1.2 percent from 1.8 percent and its 2015 prediction to 1.3 percent from 2 percent while the ZEW Center for European Economic Research said its index of investor and analyst expectations fell to minus 3.6 in October from 6.9 in September, the 10th monthly decline and the first negative reading since November 2012.

Elsewhere in Europe, UK inflation slowed to 1.2 percent in September from 1.5 percent in August while house prices rose 11.7 percent in August from a year ago, the same as in July.

Tuesday, 14 October 2014

S&P 500 falls below 200-day moving average

US stocks fell heavily again on Monday. The S&P 500 lost 1.6 percent, closing below its 200-day moving average for the first time since 2012. It has lost 4.8 percent over the past three trading sessions, the worst three-day performance since November 2011.

The Chicago Board Options Exchange Volatility Index rose 16 percent today to 24.64, the highest level since June 2012.

Earlier in the day, the STOXX Europe 600 had closed little changed.

In other markets, Brent crude oil fell 1.5 percent to the lowest since November 2010 but gold rose 0.7 percent.

The latest bout of market weakness was not driven by economic data. Indeed, probably the most significant piece of economic news on Monday was actually positive; China reported that its trade surplus in September more than doubled from the previous year as exports rose 15.3 percent and imports rose 7.0 percent, much better than August's 9.4 percent increase and 2.4 percent decrease respectively.