While you were sleeping: China, Korea, oil worries

Thursday 7th January 2016

Wall Street fell as oil prices dropped below US$35 a barrel for the first time since 2004, while North Korea claimed a successful test of its first hydrogen bomb, and China’s central bank intervened again to weaken the yuan.

“This is risk aversion right now,” Benjamin Dunn, president of Alpha Theory Advisors, told Bloomberg. “This is like a replay of the same things that moved the markets in August. We’re perhaps getting confirmation that China is as bad as people think. We’ve lost the tailwinds from the Fed and investor enthusiasm and this adds to the mosaic of fear that’s out there right now.”

Gold rose, touching the highest level in four weeks, as investors sought refuge in the perceived safety of the metal. US gold futures for February delivery climbed as high as US$1,088.05.

“People now are getting legitimately concerned and wondering where can you go?” Bruce Campbell, a fund manager at StoneCastle Investment Management in Kelowna, British Columbia, told Bloomberg. “You start to wonder what the consensus trade is and you have to start looking the other way and what’s going to change.”

“Treasuries are low and the stock markets are down so let’s hold gold,” Campbell noted.

Wall Street declined. In 12.44pm trading in New York, the Dow Jones Industrial Average dropped 1.2 percent, while the Nasdaq Composite Index slid 0.9 percent. In 12.30pm trading, the Standard & Poor’s 500 Index declined 1.1 percent.

Some are bearish indeed. The S&P 500 may drop as much as 30 percent later this year or in early 2017, UBS technical strategists led by Michael Riesner predicted in a report.

Slides in shares of American Express and those of Apple, last 2.2 percent and 2.1 percent weaker respectively, led the Dow lower.

Shares of Wal-Mart Stores were the only gainers in the Dow, last trading 1.3 percent higher.

The latest US jobs data were stronger than expected. The ADP National Employment Report showed companies added 257,000 jobs in December, the most since December 2014.

On Friday a government report is expected to show nonfarm payrolls increased 200,000 last month, while the unemployment rate is seen unchanged at a 7-1/2-year low of 5 percent, according to a Reuters survey.

Oil weakened. Benchmark Brent futures traded at US$34.48 a barrel, the lowest level since July 2004, while US crude futures traded at US$34.49 a barrel.

"There are rising stockpiles and the tension between Iran and Saudi Arabia makes any deal on production unlikely," Michael Hewson, chief market analyst at CMC Markets, told Reuters.

In Europe, the Stoxx 600 Index finished the day with a 1.3 percent drop from the previous close. Germany’s DAX Index fell 0.9 percent, the UK’s FTSE 100 Index shed 1 percent, while France’s CAC 40 Index retreated 1.3 percent.

BusinessDesk.co.nz

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