The financial markets in the US fell off sharply overnight with the Dow Jones entering a three day losing streak. Disappointing manufacturing data from China as well as mixed Q4 earnings reports hurt sentiment.
China’s potential slowdown is beginning to weigh on investors’ minds. As the world’s second largest economy slows, there will be pressure on bonds as China will have difficulty repaying. Earnings season is also not helping as we are still seeing cost cutting instead of the growth we want in corporate America. There is some talk the equity markets are over inflated and we need a correction. This is just fuel for the fire.
Asian markets continued to trade mixed to lower thanks to China after manufacturing fell to 49.6 last month. Other mixed data is not helping. The Eurozone manufacturing, however, rose from 52.7 to 53.9 in December. US manufacturing data slowed in January, while other US data showed weekly jobless benefits rose by 1,000 and existing home sales came in soft again with only 4.87 million instead of 4.94 million.
STOCKS
Yesterday, overnight, was not a good day for U.S. equity markets. The DJIA was down 232 points at one point and closed the day 175.99 points lower at 16,197.35. This is a loss of 1.1 percent. The S&P 500 lost 16.40 points to finish at 1,828.46 as financial stocks were hit hard. The tech heavy Nasdaq Composite lost 24.13 points and ended at 4,218.87.
As far as volume goes, 780 million shares traded on the NYSE and Composite volume was at 4 billion. For every ne share that was up, two fell on the Dow Jones.
Asian and Pacific Rim markets are in the red right now. The Nikkei is down 1.54 percent extending losses from yesterday. A stronger yen is not helping matters as the USD/JPY is moving through 103.55. The Nikkei is near a one and a half week low now. On mainland China, the Shanghai Composite has lost all gains it had earlier in the session and now down 0.8 percent. The correction here is far from over and any move below 2,000 will be a very bearish sign. In Australia, the ASX 200 continues it bearish sentiment after hitting a one week low at 5,262 yesterday. Poor retail sentiments are hitting investors hard.
CURRENCIES
EUR/USD (1.3681) has recovered sharply and failed at the resistance at 1.37. We had thought, and were correct that any rallies would be contained within 1.36-1.37 area. If 1.37 breaks, we can target the psychological important level of 1.4.
GBP/USD (1.66250) is now testing the upper end of its 3 week old range. We are testing 1.66 now. A break above that and 1.6650 signals a nice rally to 1.6750 and 1.69. USD/JPY (103.444) has fallen back through support at 103.65 and could dip to 103.50 and lower. We need to climb back over 103.65 to rally to 105.50 and 107.
COMMODTIES
Gold (1259.90) rose back above 1250. We are in a range from 1225 to 1260 right now. A break either way will be helpful to get a better indication. A move above 1260 can target 1280. Copper (3.298) is weak on China’s data. We are below 3.30 and while below there can move to 3.25 then 3.20. WTI Crude (97.56) continues to move higher. We are above 97.50 and can target 98. From there 102 can be next.
TODAY’S OUTLOOK
China’s growth data will weigh heavy on sentiment as we head into the weekend. Eurozone manufacturing should help with losses, but heavy drops in Asia and the US should extend to Europe as the open today.