Daily Stock Market Update: China Carnage Continues! – Jan 8, 2016

Daily Stock Market Update: China Carnage Continues! - Jan 8, 2016

US equities are bracing themselves for their worst weekly start in nearly a century, as indices chalked up back-to-back losses. The Dow 30 index slipped 392.41 points lower to close at 16,514.10 (-2.32%), the S&P 500 index ended 47.17 points down to 1,943.09 (-2.37%), and the Nasdaq fell 146.3 points down to 4,689.4 (3.03%). The S&P 500 VIX, which is considered a gauge of market uncertainty, jumped 4.40 points to 24.99 (+21.37%).

In Europe, indices were down nearly 2% as the London FTSE reportedly lost 30 billion GBP in value after falling 119.30 points to 5,594.08 (-196%). The German DAX is down 234.17 points to 9,979.85 (-2.29%), the French CAC 40 is down 76.89 points to 4,403.58 (-1.72%), and the Euro Stoxx 50 is down 55.18 points to 3,084.14 (-1.76%).

Asian markets recover today?

Following the extension of the ban on short-selling of securities and the lifting of the “circuit breaker” on Chinese stock market trading, equities appear to be in recovery mode. The China A50 index is up 217.17 points to 9,971.12 (+2.27%) and the Hang Seng is up 142.66 points to 20,476.00 (+0.68%).

The Chinese yuan also strengthened as authorities set a stronger fixing for the first time in nine sessions. NYMEX crude oil also made a brief bounce in Asian trading to $33.80 per barrel (+1.58%) after consecutive daily declines.

This rebound may carry on to the European and US equity markets, although event risks are still lined up. In Europe, Germany and France are set to print their latest industrial production and trade balance reports, with stronger than expected results likely to buoy gains. In North America, the US non-farm payrolls report for December is up for release and upbeat data could restore risk appetite before the end of the trading week.

Analysts are expecting to see a 203K gain in hiring for the month, a slightly weaker pace compared to that of November. Of particular interest is the average hourly earnings report, which is expected to show a 0.2% uptick, although stronger than expected gains could reinforce the FOMC’s view that wage growth could support overall consumer inflation.

Apart from potential profit-taking at the end of the week, the Canadian jobs report could also spur strong moves in the financial markets, as sharp job declines could revive rate cut speculations for the Bank of Canada and keep investors in a risk-off mood for the rest of the day.

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.