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China Triggers Another Global Stock Retreat; Oil Plays its Part, Too

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January 7, 2016

Different day, same drivers. Another stock rout in China and further depreciation for the price of oil are expected to drill U.S. stock averages at least initially on Thursday.

Traders are getting a not-so-gentle reminder of the interlacing of global markets with U.S. action, the impact of commodities—especially oil—on stock performance, and the reality that much of these catalysts take grip in overnight hours for U.S.-based participants.

This is the second time this week that newly minted circuit breakers in China have been triggered by steep drops, fueling plunges in European and U.S. markets.

The latest turbulence in Chinese financial markets followed a move by the People’s Bank of China to allow the yuan to fall further against the dollar. Chinese stock markets stopped trading after about 30 minutes, accounting for the shortest trading day ever for Chinese equities. Surprising to some traders, both the Japanese yen and the euro have held up relatively well even as the U.S. dollar surges against its Chinese counterpart and other currencies.

S&P 500 stock chart

FIGURE 1: MORE TESTS?

The S&P 500 (SPX), plotted here on the thinkorswim® platform, traded to its lowest since early October in Wednesday’s session as volatility continues to grip financial markets. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Where’s the Bottom? For now, traders are feeling their way for a short-term bottom. For the broad-based S&P 500 (SPX) (figure 1) support steps in at 1960-68, and from there, at 1922.

Oil Falls Anew. A continued rout in oil prices weighed on the mood. U.S.-traded crude oil futures were down another 3% or so, probing $32.93 a barrel, around a 12-year low. Price weakness hit energy stocks in pre-market trade. Chevron (CVX) was off some 2%, with Exxon Mobil (XOM) down 2%, and Occidental Petroleum (OXY) lost 3.3%.

Macy’s Cuts Staff. Macy's (M) shares, clobbered some 44% over the past year, gained some traction in extended-hours trading after the department store chain announced steps to try to shore up its struggling sales.  Macy’s said its holiday quarter was worse than expected, so it outlined plans to cut $400 million in annual costs by closing stores and cutting thousands of jobs. The company also hired a bank to help reshape its real estate portfolio. According to financial media, Macy’s expects to cut about 3,000 associate jobs across its stores and implement a "voluntary separation opportunity" for about 165 senior executives. It also will cut 600 back-office jobs and eliminate 750 jobs by consolidating call centers.

 

Good Trading,

JJ

@TDAJJKinahan

economic report calendar

FIGURE 2: ECONOMIC AGENDA.

This week’s U.S. economic report calendar. Source: Briefing.com.

Daily Swim Lessons: Dive In

Learn from platform pros with Swim LessonsSM on the thinkorswim® platform. Thursday: Ratio Spreads

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