Monday, 30 November 2015

Chinese stocks plunge, then recover

China's stock market recovered from early losses on Monday to finish with a slight gain.

After falling 5.5 percent on Friday, the Shanghai Composite Index kicked off the new week with another plunge, losing as much as 3.2 percent during the session.

However, the losses were erased late in the session. The Shanghai Composite Index ended up 0.3 percent.

Most other Asian stock markets also fell on Monday. Japan’s Topix index fell 0.9 percent, the KOSPI index in Seoul plunged 1.8 percent and Australia’s S&P/ASX 200 Index declined 0.7 percent.

The falls on Monday followed a report on Sunday that China’s Citic Securities Co., Haitong Securities Co. and Guosen Securities Co. are being probed for alleged breaches of rules on margin and short-selling contracts.

Saturday, 28 November 2015

Chinese stocks plunge

Chinese stocks fell sharply on Friday but other markets mostly shrugged off the fall.

The Shanghai Composite Index plunged 5.5 percent, its biggest decline since August, after a report showed a decline in industrial profits and regulators clamped down on brokers.

Other emerging markets were also hit, with the MSCI Emerging Markets Index falling 1.4 percent.

However, the STOXX Europe 600 fell just 0.2 percent and the S&P 500 rose less than 0.1 percent.

The yield on US 10-year Treasury notes fell one basis point to 2.22 percent while Germany’s two-year yield dropped to a record minus 0.42 percent.

Friday, 27 November 2015

Global stocks rise, flattish US market unlikely to remain calm next year

Global stocks mostly rose on Thursday.

The STOXX Europe 600 rose 0.9 percent. It had risen 1.4 percent on Wednesday and is now at a three-month high.

In Asia, the Nikkei 225 rose 0.5 percent but the Shanghai Composite Index fell 0.3 percent.

US stock markets were closed on Thursday.

US stocks have been flattish in 2015 but are unlikely to repeat such a performance next year. Barron's cites Sam Stovall, US stock strategist at S&P Capital IQ, as saying that two consecutively calm years for the US stock market are rare.

Indeed, some analysts are comparing this year's market with 2011 and 1937, comparisons that suggest that next year is unlikely to be calm. From the WSJ's MoneyBeat blog:

Market watchers have been noting similarities between this year and 2011 for several months now. But another year might be a better comparison: 1937.

The distinction is an important one. If you buy the 2011 comparison, you may conclude that stocks are going to rocket higher from here. If you’re inclined to favor the 1937 analogy, you may want to prepare for a downturn.

Wednesday, 25 November 2015

Stocks rebound from early falls after Turkey downs Russian plane

US stocks finished little changed on Tuesday.

The S&P 500 closed 0.1 percent higher after falling as much as 0.8 percent earlier in the session following news of Turkey’s downing of a Russian warplane.

The STOXX Europe 600 Index fell 1.2 percent, paring an earlier loss of as much as 2 percent.

The MSCI Asia Pacific Index rose 0.2 percent, as did the Shanghai Composite Index.

US 10-year Treasury yields were little changed at 2.24 percent.

However, yields on Germany’s two-year notes fell below minus 0.4 percent for the first time while yields on similar-maturity Austrian, Belgian and Finnish securities slipped to record lows.

Tuesday, 24 November 2015

Stocks fall, China remains worry

Stocks fell on Monday.

The S&P 500 fell 0.1 percent, the STOXX Europe 600 fell 0.4 percent and the Shanghai Composite Index fell 0.6 percent.

Despite the rebound in markets in recent months, China remains a source of worry for many. From Bloomberg:

David Tepper says a yuan devaluation may be coming in China. John Burbank warns that a hard landing there could spark a global recession...

“The downside scenario for China seems more intimidating than ever before,” billionaire Dan Loeb wrote on Oct. 30 to investors at Third Point.

Saturday, 21 November 2015

Stocks rise heading into jolly season

Despite all the anguish following the Paris attack last week, US stocks ended this week on a positive note.

The S&P 500 rose 0.4 percent on Friday to finish the week up 3.3 percent, the best weekly performance in 2015.

The STOXX Europe 600 also rose 3.3 percent this week after edging up 0.2 percent on Friday.

The advance this week sets the stock market up for what could be a jolly season:

According to analytics service Kensho, in the last ten years, the S&P 500 has averaged a gain of 1.9 percent in the week of Thanksgiving, ending positive six times.

Friday, 20 November 2015

Markets mixed, China lowers rates as debt rises

Markets were mixed on Thursday.

After jumping 1.6 percent on Wednesday for its biggest gain in four weeks, the S&P 500 slipped 0.1 percent on Thursday, weighed down by a 1.5 percent fall in the health-care sector.

Elsewhere, though, stocks rose. The STOXX Europe 600 rose 0.4 percent and the Shanghai Composite Index jumped 1.4 percent.

Chinese stocks could see further gains going forward after the People's Bank of China announced on Thursday that it would lower short-term borrowing costs for smaller banks.

However, Chinese borrowers may already be addicted to cheap loans. The amount of loans, bonds and shadow finance arranged to cover interest payments will probably rise 5 percent this year to a record 7.6 trillion yuan, according to Beijing-based Hua Chuang Securities.

“We will see more defaults and rising bad loans in the financial system,” said Zhou Hao, a senior economist at Commerzbank AG in Singapore.

That could spell trouble for the Chinese economy and, in turn, the world eonomy. According to Oxford Economics, world growth would "slow sharply" if China's economy experiences a hard landing.

Wednesday, 18 November 2015

European stocks surge but US stocks slip

Markets were mostly higher on Tuesday.

The STOXX Europe 600 jumped 2.5 percent. France saw the biggest gains, with the CAC 40 surging 2.8 percent.

In Asia, Japan's Nikkei 225 index rose 1.2 percent and Hong Kong's Hang Seng index gained 1.2 percent but the Shanghai Composite Index slipped 0.1 percent.

In the US, the S&P 500 rose early in the trading session but gave up the gains to close 0.1 percent lower.

Tuesday, 17 November 2015

Markets shrug off Paris attack, Japan back in recession

After early jitters on Monday, markets mostly ended the day up.

The S&P 500 closed 1.5 percent higher while the STOXX Europe 600 reversed early losses to close 0.3 percent higher.

Safe havens like gold, the US dollar and the Japanese yen also rose.

The yen rose despite a report on Monday showing that the Japanese economy shrank an annualised 0.8 percent in July-September, marking a second straight quarter of contraction, technically putting Japan in recession.

Monday, 16 November 2015

Markets react to Paris attack

Markets are falling early on Monday after the terrorist attack in Paris on Friday. From Bloomberg:

Europe’s common currency weakened 0.5 percent against the dollar as the deadly violence in Paris on Friday heightened concern that geopolitical tension will weigh on trade and consumer confidence. China led losses in Asian equity markets after authorities tightened curbs on the use of borrowed money to buy shares. Index futures in the U.S. and the U.K. dropped. Gold advanced the most in a month, while Treasuries climbed for a fifth day.

Some analysts think the long-term impact will be limited though.

“Global markets may turn to risk-off in the short term as geopolitical risk rises,” said Kiyoshi Ishigane, chief strategist at Mitsubishi UFJ Kokusai Asset Management in Tokyo. “But I think the impact to the global economy is limited, even if there is some impact on the French and EU economies.”

Friday, 13 November 2015

Markets fall but stock valuations stll a headwind

Markets tumbled on Thursday.

The S&P 500 fell 1.4 percent and the STOXX Europe 600 fell 1.6 percent.

Asia escaped the declines earlier on Thursday though. The MSCI All-Country Asia Pacific Index rose 0.4 percent.

Commodities also fell on Thursday. West Texas Intermediate oil fell 2.8 percent while copper fell 2.4 percent to a six-year low.

US Treasuries rose. The yield on the US 10-year note fell two basis points to 2.32 percent.

Despite the recent pull-back in stocks, many analysts expect to see a year-end rally.

"My inclination is whatever pullback we get out of here, I'm looking for a buying opportunity," John Kosar, chief strategist at Asbury Research, said. "By year-end, we could challenge or exceed the 2015 highs on the S&P 500."

Valuations remain a headwind for US stocks though. Despite the recent market decline, the forward four-quarter P-E ratio remains at a relatively high 16.5.

“With valuations at the high end it becomes difficult to be an aggressive buyer (of stocks) against a backdrop of still-slower revenue and sales growth and a Federal Reserve seemingly intent on a December liftoff,” Quincy Krosby, a market strategist at Prudential Financial, told USA TODAY.

Thursday, 12 November 2015

Negative interest rates loom

Markets were mixed again on Wednesday.

The STOXX Europe 600 rose 0.7 percent while the Shanghai Composite Index gained 0.2 percent.

However, the S&P 500 fell 0.3 percent.

Oil, gold and the US dollar all fell on Wednesday.

Euro-area government bonds rose, pushing German two-year note yields to a record low, as investors increasingly see a likelihood of additional European Central Bank monetary stimulus.

Indeed, the trend towards even lower rates may persist. From Bloomberg:

“There’s a very real chance unorthodoxy becomes the new orthodoxy,” said Alan Ruskin, global head of Group-of-10 currency strategy at Deutsche Bank AG in New York.

While financial markets are focused on the Federal Reserve’s looming rate increase, policy makers and economists are already changing their attitude toward negative rates.

European Central Bank President Mario Draghi is open to reducing the rate he charges banks to leave money in his coffers overnight further into negative territory. Bank of England Governor Mark Carney has also revised his thinking to say the U.K. benchmark could fall below 0.5 percent if needed having previously worried deeper cuts would roil money markets.

Meantime, Fed Chair Janet Yellen said last week that “if circumstances were to change” then “potentially anything, including negative interest rates, would be on the table.” One of her policy-setting colleagues has already advocated them for next year.

Wednesday, 11 November 2015

Markets mixed, Fed rate hike may weaken economy

Global stock markets were mixed on Tuesday.

The US stock market managed to eke out a gain, with the S&P 500 rising 0.2 percent to end a four-day losing streak.

However, the Shanghai Composite Index slipped 0.2 percent after a four-day, 10 percent rally.

The MSCI All-Country World Index fell for a fifth consecutive day, losing 0.2 percent.

Commodities also mostly fell but West Texas Intermediate crude oil halted its four-day slide, rising 0.8 percent.

The US dollar and US Treasuries rose, with the yield on the 10-year note falling one basis point to 2.34 percent.

The rise in the US dollar, though, has been driven by expectations of an interest rate hike by the Federal Reserve. The latter would not be good for stocks, bonds or the economy, according to Jeffrey Gundlach.

“I have a hard time believing a Fed tightening will help the economy,” Gundlach said on Monday during a conference call with investors. “I think volatility will increase and the economy will weaken.”

Tuesday, 10 November 2015

Markets fall, China faces deflationary pressure

Markets fell on Monday.

The S&P 500 fell 1.0 percent while the STOXX Europe 600 fell 1.1 percent.

Earlier on Monday, the Shanghai Composite Index did manage to extend its rally for a fourth consecutive day though, rising 1.6 percent.

Commodities were weak, the Bloomberg Commodity Index falling 1.2 percent. West Texas Intermediate crude for December delivery declined for a fourth day, falling 1 percent.

Indeed, data out of China on Tuesday indicated deflationary pressure.

China's consumer price index rose 1.3 percent in October from a year earlier, down from 1.6 percent in September. The producer price index fell 5.9 percent, its 44th consecutive monthly decline.

"The risk of deflation has accentuated," said Liu Li-Gang, the chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. "This requires the PBOC to engage in more aggressive policy easing."

Less certain is Zhu Qibing, an analyst at China Minzu Securities Co. "But this year, the effectiveness of monetary policy in boosting demand has been limited," he said. "So even if the central bank has room, it may not cut interest rates again until next year."

Saturday, 7 November 2015

US employment surges, December rate hike looking likely

US nonfarm payrolls increased 271,000 in October, the biggest this year, the Labor Department reported on Friday. The jobless rate fell to a seven-year low of 5 percent.

Stock investors shrugged off the news. Even as traders raised their expectations on a December rise in rates to a 68 percent chance from 56 percent, the S&P 500 dipped less than 0.1 percent.

“The report is pretty good across the board,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. “December is now a very high likelihood for the Fed to hike rates.”

Thursday, 5 November 2015

US stocks fall on possible rate hike but European and Chinese stocks rise

US stocks fell on Wednesday. The S&P 500 lost 0.4 percent after Federal Reserve Chairwoman Janet Yellen hinted to the House Financial Services Committee that a 25 basis point rate hike in December was still on the cards.

The odds of a rate hike in December moving to 60 percent from about 52 percent on Tuesday, according to the CME Group Fed Watch tool.

Earlier, comments by European Central Bank President Mario Draghi that the bank is ready to provide more stimulus in December to boost inflation if needed helped push the STOXX Europe 600 up 0.5 percent.

In Asia, the Shanghai Composite Index jumped 4.3 percent on speculation that authorities in China will open a trading link between Hong Kong and Shenzhen by the end of the year.

Tuesday, 3 November 2015

Stocks extend rally but long-term trends could be about to reverse on demographic change

Global stock markets mostly continued their rallies on the first trading day of November.

The S&P 500 rose 1.2 percent to the highest level since 10 August. It is now just 1.3 percent below its all-time high. The Nasdaq 100 also rose 1.2 percent to its highest level since 2000.

The Stoxx Europe 600 rose 0.3 percent but the MSCI Asia Pacific Index fell 1.1 percent, the most in more than a month, on Chinese data which showed manufacturing contracted again last month.

Still, Monday's performance suggests the bull market may still be alive, a bull market that a Bloomberg report says has benefitted Wall Street much more than Main Street.

In a report sent to clients on Sunday, Bank of America Corp. strategists totted up the results of 606 global interest-rate cuts since the collapse of Lehman Brothers Holdings Inc. and the $12.4 trillion of central bank asset purchases following the rescue of Bear Stearns Cos.

The results represent a clear victory for Wall Street over Main Street, according to the team of Michael Hartnett, BofA’s chief investment strategist.

For every job created in the U.S. this decade, companies spent $296,000 buying back their stocks, according to the New York-based bank.

An investment of $100 in a portfolio of stocks and bonds since the Federal Reserve began quantitative easing would now be worth $205. Over the same time, a wage of $100 has risen to just $114.

However, another Bloomberg report suggests that things may be about to change.

[A]ccording to Charles Goodhart, professor at the London School of Economics and senior economic consultant to Morgan Stanley, demographics explain the vast majority of three major trends that have shaped the socioeconomic and political environments across advanced economies over the past few decades. Those three would be declining real interest rates, shrinking real wages, and increasing inequality...

So what now, as the conditions that fostered these long- decades-defining demographic trends dissipate?

As dependency ratios rise, with a greater share of retirees relative to workers, "all three trends could reverse," argues Goodhart.

Monday, 2 November 2015

Stocks rally strongly on short-covering

Stocks had a strong October.

The S&P 500 rose 8.3 percent last month, the best monthly gain since 2011. The STOXX Europe 600 rose 8 percent.

However, John Hussman thinks that this rally was a "last gasp" of the bull market.

"Our own measures of market internals remain unfavorable, and trading volume has been persistently weak, suggesting that the rebound may be more reflective of short-covering than a resumption of the insistent yield-seeking speculation observed prior to mid-2014," he wrote.

Similarly, Paban Raj Pandey thinks that a decline in short interest has provided a "tailwind" for stocks but still thinks that the rally may not last.

"When it is all said and done, buyers need to be willing to put new money to work. That is what is lacking," he wrote. "Corporate buybacks may soon pick up, but equity flows and margin debt are not cooperating. Mid- and small-caps are severely lagging large-caps."

"Hardly a recipe for the continuation of a short squeeze," he added.