Global Wrap: Europeans Decline, China Enters Bear Market

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Current Futures: Dow -77.00, S&P -9.30, NASDAQ -17.00

The European markets continue to decline on Wednesday, as traders think that the current valuation does not reflect the state of the global economy.

Most European markets are heading lower, with the European blue chip companies down a little more than 1%. The only exception came from the smaller markets, as Luxembourg or Slovakia, which were driven higher by regional news reports. The rest of the market headed lower on Wednesday, reaching very important support areas. In particular, the German Dax is trading just above the 5185.00 area, the same place it topped at the beginning of June. The S&P futures are trading near the 980.00 area, which represents the 23.6% retracement area of the uptrend started in July, following the much better than expected corporate earnings reports. If it breaks any lower, the S&P will a reach 3-week low, possibly causing the global market to continue its downward move.

The Chinese stock market has possibly contributed to the current market retracement period. The Shanghai stock index dropped 4.3% on Wednesday, with a large part of the declines coming in the last few trading hours, which sent the Chinese stock market into bear territory. The declines in the Chinese stock market came as additional voices started to question the numbers coming out the Chinese economy, and because the Chinese central bank is determined to reduce the pace at which new loans are being issued.

As always, the financials and the raw material companies had the biggest downward contribution in the European stock market. However, there were also some exceptions, as the mining company Eurasian Natural Resources surprised the market with better than expected quarterly earnings. In the German Dax, VW shares continue to decline at a strong pace, being the worst performer in the index over the last few days. On Wednesday, VW is down nearly 5%, while the company has lost 35% since the beginning of August. On the other hand, Porsches’ shares are up 25% over the same period, as the two companies plan to merge. 

Overnight, the U.K. FTSE lost 42.35 points (0.90%) to 4,643.43, while the German Dax fell 64.97 points (1.24%) to 5,185.77.

Crude oil for August delivery was recently trading at $68.80 per barrel, down by $0.30. 

Gold for August delivery was recently trading lower by $2.80 to $936.40. 

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