Global stocks are in a funk this morning after the big selloff in Shanghai stocks yesterday went global. The DAX in Germany lost more than 4%, the FTSE in London is down 2.39% and the S&P 500 in the US is around 1.84% but off its lows at the close.
The rout in Chinese stocks, and the accompanying weak Chinese PMI and currency, has everyone talking and it’s what helped turned the ASX around yesterday. Initially the ASX200 traded up to a high around 5,330 but it reversed to close down half a per cent at 5,270. That was a solid performance and overnight futures traders have been similarly circumspect with the March contract only down 30 points, 0.6%. We’ll see how things go today but it would be remarkable if the ASX only falls that far given energy held it up yesterday and oil was lower overnight.
On forex markets, the Aussie and Kiwi dollars are the worst performers losing 1.5% due to their China link and the bout of risk aversion. Copper is down at 2.08 for a loss of 2% and Nymex crude is more than $1.20 a barrel lower than yesterday morning’s high.
It’s been a bad start to the year and traders are worried. Everyone is waiting to see what happens when Chinese markets open again today.
So, the scoreboard (8.10am):
- Dow: 17,148.94, -276.09 (-1.58%)
- S&P 500: 2,008.79, -35.15 (-1.72%)
- SPI200 Futures (March): 5218, -34 (0.6%)
- AUDUSD: 0.7189, -0.0106 (-1.5%)
And now the top stories:
1. Here’s what happens after stocks get walloped on day 1 of the year. What an ugly open to 2016. It’s a bad omen for anyone who believes in the January effect. Of course stocks could recover from here in the days ahead. But Myles Udland from BI US says that some of the worst years for markets, 1930, 1937, 2001, 2008 — began with greater than 1% drops like we have seen in the US overnight. You can read more here.
And, in case you’ve missed it, here’s Henry Blodget, Business Insider’s founding father, with another warning of dark days ahead. A stock-market crash of 50%+ would not be a surprise — or the worst-case scenario.
2. There’s a really simple explanation for China stock market rout. I’ve been doing this markets thing since the late 1980s and one thing that bugs me is ex-poste rationalisation of what happened yesterday. Look at all the reasons we are being given for why Chinese stocks sold off. Some might be true, some have been fitted after the fact.
But there is one good reason that we can point to as to why Chinese stocks did sell off. The Shanghai composite broke a very important uptrend and the bears took control. I’ve done an explainer and what it might mean for markets today here.
And for a little more on China here is Linnette Lopez from BI US with an interesting article – China’s economy hangs on three huge ‘ifs’ ― and none of them are the stock market.
3. Receivers have been appointed to Dick Smith. This one will break the hearts of anyone who grew up in the early days of CB radios and the growth of this iconic Australian electronics store. News this morning is that Dick Smith’s bankers have appointed receivers to the company . The Australian reported that the company “will now be formally wound up in a process aimed at maximising returns for the banks.” That will end the firm’s short life on the stock market and have cost Australia’s retail investors a lot of cash.
4. Oil investors are underestimating the seriousness of the Saudi Arabia – Iran diplomatic skirmish. This time yesterday I would have bet that the Iran-Saudi face off was all we would be talking about today. But oil is lower this morning, down 0.81% in Nymex terms to $36.74, and all we are talking about is China. Elena Holodny from BI US warns that Macquarie bank analysts think investors are underestimating the seriousness of this battle between the two Middle Eastern heavyweights and the potentially bullish impact that has on global oil prices.
As if on cue, the Wall Street Journal reports this morning that Saudi allies Bahrain and the UAE have joined Saudi Arabia “in cutting back diplomatic ties with Tehran”.
5. Investors have low expectations for 2016. The easy money since the lows in 2009 has been made and US markets had their first down year in 2015 since 2008. So it’s no surprise that investors are a bit gloomy about the year ahead as the WSJ reports. One fund manager said there are “not a lot of things to get enthusiastic about, and a long list of things to be worried about”. The story doesn’t get any better from there.
But it does fit a theme and perhaps, in a behavioural of psychological sense, help explain why the selling has come so easily on this first trading day of the year. It also suggests a negative bias for the month, perhaps year, ahead.
Some of the things that are worrying investors are neatly summarised in Byron Wein’s 31st annual list of big surprises for 2016.
6. The rally in iron ore continues. How strange it is that amongst all the doom and gloom, iron ore is doing the opposite to what many would have thought. Its rally is now stretching into a solid run. David Scutt has more here.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Bellamy’s Australia (BAL: ASX)
Buying into pullbacks between the 10 and 20 day moving averages has been a good strategy for those riding the magnificent uptrend in “white gold” milk products stock Bellamy’s.
The next couple of days may be interesting test though. There’s an argument to say this chart has completed an Elliot 5 wave uptrend. That makes the support of the 20 day moving average and horizontal line pretty important. If that is breached a bigger correction could be in store, say down to the 38.2% retracement just below $12.
These are big moves but on a multiple of 40 times F16 earnings there is plenty of scope for volatility.
Ric Spooner, chief market analyst, CMC Markets