Contracting production in China - 4.1.2016

The US stocks slumped on Thursday on the unexpectedly low PMI in Chicago. Today in the morning the China’s PMI came out being far below the forecasts. In December it fell for the 10th month in a row. As a result, the Chinese Shanghai Composite stock index tumbled 6.9% and yuan weakened significantly. The negative data affected the stock markets around the globe while the stocks trading was suspended in China. The US stock index futures fell sharply while the US dollar index is quite stable being supported by weaker Chinese yuan. As of the year-end, S&P 500 fell 0.7%, Dow Jones industrial average fell 2.2%. Nasdaq 100 composite advanced 5.7%. Chesapeake Energy, engaged in shale oil and natural gas production, was the bottom performer of S&P components last year which its shares losing 77%. On the other side, the consumer sector companies were the top performers. The online cinema Netflix stocks rose 134% while online retailer Amazon stocks rose 118%. The trading volume on the US exchanges on Thursday was at 5.3bn stocks which is 26% below the last 20 trading days average. Today at 16:00 CET in the US the November building expenses and December ISM will be released. The latter may decelerate the market slump as its tentative outlook is positive.

European stocks are tumbling today on weak data from China. Today in the morning the final December manufacturing PMI in Germany and Eurozone came out. The stock markets shrugged off these data but euro strengthened. Today in 14:00 CET the Germany’s inflation data will be released. The tentative outlook is positive.

Nikkei has considerably decreased today together with other stock markets indices. The yen strengthened to the highest in 10 weeks. Market participants regarded the Japanese currency as a safe haven amid the probable economic difficulties in China. What is more, the Japan’s positive final industrial production for December provided the yen with further support.

The fall of Chinese industrial production impinged on some commodity futures prices. Most of them closed lower, except for gold and oil.

Brent oil prices edged higher amid escalated conflict of Iran and Saudi Arabia. The two countries have already broken diplomatic relationship. Iran ranks 5th by oil production volumes among the OPEC members while Saudi Arabia is second to none. Oil prices were also supported by the Norway’s Rystad Energy agency which expects the global investments in oil production to fall to the 6-year low of $522bn in 2016. Last year they already fell 22%. The global investments in oil production have been falling for the two consecutive years for the first time since 1986. The slump is mainly due to the low oil prices.

Gold edged higher amid the slump of the world stocks indices and the escalating conflict of Iran and Saudi Arabia. As of last year-end, the stocks of the world major gold fund SPDR Gold Trust fell to the lowest in 7 years amounting to 642.37 tonnes.

Soy prices continue falling down today on rainy weather in Brazil which may cause better crops. Moreover, the weekly US soy export was below forecasts amounting to the scares 478 thousand tonnes, the lowest reading this season. Market participants are worried the soybeans demand may contract.