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Street Eyes Another Tumble as North Korea Bomb Test Adds to Nerves

Print
January 6, 2016

U.S. stock action pointed to potential sharp losses in Wednesday’s session as a renewed drop for oil prices, another round of weaker Chinese data, and news reports of a bomb test in North Korea combined to darken the mood on Wall Street.

That sentiment continued to send noticeable institutional money into the fixed-income market as at least a short-term “safe-haven” play. That drives down market interest rates at a time when the Federal Reserve is looking to tighten U.S. rates.

Chinese service-sector data fell to a 17-month low and drove its yuan currency to a five-year low against the dollar, although its Shanghai Composite stock index did hold up relatively well. London-traded Brent crude oil fell some 4% to probe fresh 11-year lows. U.S.-traded crude was down some 3%.

And on the geopolitical front, North Korea announced that it successfully detonated a hydrogen bomb, in its first test of a more powerful form of nuclear weapon than previously believed to be in its arsenal, according to several news reports. That rattled global markets, although debate continues over the strength of the bomb and how long a sentiment driver such as this might sit on the minds of investors.

SPX-stock-index

FIGURE 1: UP FOR AIR?

The S&P 500 (SPX), plotted here on the thinkorswim® platform, found some stability on Tuesday after Monday’s rough start. Early action on Wednesday pointed to more volatility, however. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

AAPL below $100. Adding to black mood, Apple (AAPL) stock, which can (perhaps unfairly) be considered a broader market barometer, pushed below $100. It issued positive holiday app sales data but was hit by reports this week that its plans to scale back production of its iPhones.

Hawkish or Dovish Fed? This afternoon features the release of Fed meeting minutes from its latest gathering. Remember, it produced the first U.S. interest rate hike in nearly a decade and set in motion the guessing game for how far and how fast the Fed might operate. The meeting minutes could show what some Street economists suspect is lingering divide among the Fed ranks. In a morning CNBC interview, the Fed’s Stanley Fischer said the futures market pricing for two expected Fed rate hikes in 2016 is “too low.” Because the Fed  will have to be flexible and respond to many unknowns, "we don't know enough now to know how many [rate hikes] there will be,” he said.

Different Auto Sector View? New car sales have generally been trending up, an important sign for consumer spending overall. But on Wednesday, AutoNation (AN) shares fell after the car dealership’s CEO Mike Jackson warned of a slowdown in premium car sales.

Good Trading,

JJ

@TDAJJKinahan

economic report calendar

FIGURE 2: ECONOMIC AGENDA.

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

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