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China’s Regulatory Shift Ripples Across Global Stock Markets

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April 17, 2015

Friday’s stock market influence could come from afar if the selling current that started in Asia and carried to Europe washes up on U.S. shores. Chinese regulatory moves are behind the broad stock sell-off. That trumps the domestic fundamental news and technical consolidation that’s dominated trading for much of this week—I mean the S&P 500 (SPX) has only moved about 50 points total since March 20.

U.S. Stocks closed Thursday’s session a touch lower in a move largely considered to be a technical churn at these highs. Deeper losses were likely limited by a handful of Fed members who suggested a near-term interest-rate hike might be less likely. The S&P 500 (SPX) ended 0.5% shy of its all-time closing high of 2,117.39 struck on March 2. Despite the down day, the finish above 2100 will be considered a minor victory by the bulls (figure 1).

FIGURE 1: 2100 HOLDS.

Choppy, chart-driven trading prevailed Thursday, although the S&P 500 (SPX) finished above a major line at 2100. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

China Allows Short Selling. Chinese authorities on Friday opened the door for fund managers to lend shares for short-selling and will also expand the number of stocks investors can short sell. Industry analysts said it’s a move that could be aimed at cooling red-hot markets, including a 17% year-to-date gain in Hong Kong’s Hang Seng. The news triggered sharp losses for Chinese stock-index futures, which in turn triggered drops in U.S. stock futures and European equities. Global traders digested this news at about the same time that a widespread Bloomberg tech outage disrupted trading.

Industrials disappoint. General Electric (GE), whose internal shuffle cheered markets in recent days, delivered a stinker of an earnings report today. GE said Q1 revenue fell in part on weakness in its oil-and-gas business and foreign exchange sting. It also took some charges related to that plan to sell off the bulk of its lending arm. Excluding exit charges, GE's operating earnings narrowly topped expectations, while revenue was shy. Another early decliner, Honeywell International (HON) is a leading decliner after its profit beat Street expectations but it missed with sales and cut its outlook. For 2015, the industrial conglomerate cut is sales outlook to a range of $39 billion to $39.6 billion from $40.5 billion to $41.1 billion, but raised the lower end of its EPS outlook to a range of $6 to $6.15 from $5.95 to $6.15.

Coming Next Week. Next week will be big on the earnings front, with almost 150 S&P 500 members scheduled to report Q1 results.

Good trading,
JJ
@TDAJJKinahan

JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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