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Market Update

Fed, China Puzzle Leaves Street Unsettled in Data-Light Week

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September 22, 2015

A Tuesday retreat for U.S. stocks is taking shape but the culprit is elusive. Asia gained, but Europe followed up with broad stock declines on the back of miners and auto firms. Crude oil futures are down some 2.6%, taking a toll on stock sentiment.

But even then determining the “why lower?” is an exercise to simply fill in the blanks. This market feels like it wants to sell, at least short term, and there may be little fresh news behind the move.

This market is also sensitive to sector-specific moves. One of Monday’s late stalls followed a move lower for health care stocks. This sector, and biotechnology, slumped after Democratic presidential candidate Hillary Clinton said in a tweet that she would lay out a plan to prevent price gouging by specialty drug makers.

Ultimately, stock investors can’t shake the sense of uncertainty delivered by the Federal Reserve’s no-action interest rate meeting last week. Some observers would have expected at least a mild relief rally that the Fed wasn’t removing the extra economic juice just yet. Instead, the Fed’s wait-and-see is weighing on Wall Street. Many are wondering if the China-led global economic slowdown is a bigger mess than first thought?

FIGURE 1: VIX BOUNCED AT 20.

The CBOE Volatility Index (VIX) moved lower with broader stocks in Monday’s session but held the key 20 area. Data source: CBOE. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Lockhart Sees a 2015 Hike. Atlanta Fed President Dennis Lockhart is due to make remarks at 6 p.m. Eastern. Lockhart, a rate voter this year, said Monday that he’s “confident” there will be rate hike this year. The Fed funds futures market isn’t as sure. Traders there had priced in a some 60% chance for a Fed rate hike in December on the day of the September meeting. By today, those odds are down to 44%. That’s a big move in less than a week.

China’s Xi: First State Visit. China is in the news again, with President Xi Jinping writing in The Wall Street Journal about his country’s willingness to advance a full slate of economic reforms. Global markets largely shrugged off this pledge, analyst notes issued this morning said, as traders want action and results over lip service. Xi, who is bound for his first state visit the U.S., defended the emergency government actions in currency and stock markets this summer but he urged patience. “Any ship, however large, may occasionally get unstable sailing on the high sea,” he said.

Oil: Price Volatility This Week. Industry analysts look for more give and take in the crude oil futures market as traders grapple with U.S. supply figures and uncertainty for China’s thirst for oil. U.S. oil prices had surged 4.5% on Monday amid signs that low prices are starting to crimp the pace of oil production in the U.S. This week’s numbers will be closely watched for more signs of supply adjustments. U.S.-traded crude is below $46 a barrel Tuesday.

Good trading,
JJ
@TDAJJKinahan

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