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Wide Stock Swings Continue for Major Indexes as Oil, China Dominate

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January 21, 2016

(Thursday Pre-Market) Wild swings in stock futures action and early regular trading hit on Thursday as volatility continues to mark the start of 2016. More sharp losses in Asia and a looming oil supply report, combined with steady interest rate policy in Europe, are driving trading.

Europe’s stocks also seesawed as the European Central Bank (ECB) held interest rates unchanged but indicated it remains on standby to act with more economic stimulus if needed (more from ECB President Mario Draghi below). Asian stocks fell even as Chinese authorities took more steps to pump cash into their economy. China’s Shanghai Composite Index dropped 3.2% at the close. Japan’s Nikkei 225 reversed a positive start to finish 2.4% lower; it entered a bear market this week.

On Wednesday, the Dow Jones Industrial Average ($DJI) shed 1.6%, or 249 points (off an earlier over 500-point drop), to close at 15,766, its lowest finish since August 25. The S&P 500 (SPX) finished down 22 points, or 1.2%, to 1,859, its lowest close since April 15, 2014 (figure 1).

Crude prices remained under pressure after dropping below $27 a barrel on Wednesday. Investors were waiting for an update later Thursday on U.S. oil stockpiles from the Energy Information Administration, which industry analysts expect to show an increase in supply from the previous week.

SPX stock chart

FIGURE 1: NEW TERRITORY.

The S&P 500 (SPX), plotted here on the thinkorswim® platform, moved to 2014 levels this week. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Chinese Action. China's central bank this week made its most aggressive move in four years to add cash into the country's financial system, which industry analysts said was an effort to stem rapid capital flight leading up to the typically heavy-spending Chinese New Year holiday. The People's Bank of China offered 400 billion yuan ($60.8 billion) worth of short-term loans, known as reverse-repurchase agreements, to commercial lenders on Thursday. Combined with early week actions, the central bank's net cash injection for this week reached 315 billion yuan, the largest of its kind since mid-January 2012, the financial press reports.

Word from ECB’s Draghi. ECB chief Mario Draghi signals that the central bank will review and “possibly reconsider” its policy stance at its next meeting as global market turmoil raises downside risks, according to MarketWatch, blogging from the speech. Inflation dynamics are weaker than expected, Draghi says, according to the report. The news sent the euro lower but did bring some stability to European stocks intra-day.

GM Reports Sales Jump. General Motors (GM) reported an increase in global sales for the third year in a row. Global sales, amounting to 9.8 million vehicles sold in 2015, increased 0.2%. Cadillac sales grew 8% globally, largely driven by sales in China. Total U.S. sales were up 5%, due to sales from vehicles such as the Chevrolet Silverado and Colorado. Shares of General Motors have fallen 13.5% year to date, compared to the S&P 500's decline of 9%.

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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