Stocks Sharply Lower on China Concerns

28 Sep 2015 | Author: | No comments yet »

At midday: TSX falls more than 2% as financials, resources drag.

Losses accelerated for U.S. stocks Monday as concerns about slowing economic growth in China and mixed domestic economic data unnerved investors and carnage in the biotech sector extended into a second week. “I think what we have here is a continuation of the selling we saw on Friday,” said Joe Saluzzi, co-founder and co-head of equity trading at Themis Trading, pointing to a sharp selloff that gripped markets toward the end of Friday’s trading session that was pegged to weakness in biotech and health-care stocks.U.S. stocks fell sharply in afternoon trade Monday, as fresh evidence of an economic slowdown in China added to investors’ fears about the outlook for global growth.Global equity markets and commodities were under pressure on Monday on renewed concerns about the stability of China and other big emerging economies in a week filled with economic data. The S&P 500 SPX, -2.53% fell 49 points, or almost 2.5%, to 1,882, sliding below the 1,900 level for the first time since late August, when the market was rocked by China’s move to devalue its currency.

Energy and raw-materials producers were among the session’s biggest decliners as commodity prices fell following a report showing China’s industrial profits dropped 8.8% in August from a year earlier. An 8.8-per-cent drop in Chinese industrial firms’ profits and a plunge of nearly 30 per cent in miner Glencore’s London-traded shares triggered the latest round of jitters, sending copper, which had stabilized somewhat, back below $5,000 (U.S.) a tonne. “We are in that mode now where everybody is saying this is it, the Fed screwed up, China is disappointing, commodities are getting crushed. There is no reason to be aggressive, no reason to go higher, so it becomes self-fulfilling,” said Ken Polcari, Director of the NYSE floor division at O’Neil Securities in New York. Shares in commodities giant Glencore GLNCY -27.53 % PLC sank more than 29% to an all-time low as the mining company continued to suffer from a slump in commodity prices and concerns over its burgeoning debt-laden balance sheet.

Markets had already been skittish ahead of a week of key economic data including euro zone inflation on Wednesday, Chinese industrial and service sector PMIs on Thursday and U.S. jobs figures on Friday. Katz says he has roughly halved exposure to emerging-market stocks and fixed-income investments since mid-August and is planning to focus on U.S. stocks with little exposure to international markets. Some investors interpreted the Fed’s decision to keep short-term rates near zero at its meeting in September as a lack of confidence in the U.S. economic recovery. New York Federal Reserve President William Dudley added to the expectations of an early rate increase, suggesting the central bank could pull the trigger as soon as in October. “I can imagine half are going to be hawkish, half are going to be dovish and it is just going to create more confusion for the market,” said Mr.

The iShares Nasdaq Biotechnology ETF IBB, -5.94% a measure of the biotech’s performance, sank 7.3% Monday and was on track for its worst single-session decline in four years. Slumping commodities prices, including a sharp fall in the price of crude oil CLX5, -2.47% and worries about London mining giant Glencore PLC GLEN, -29.42% which plunged nearly 30% in London, underscored concerns about economic growth outside of the U.S. “The market is just not in a really good mood right now,” said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research.

On Monday analysts pointed to reports citing Chinese government statistics that showed profits in the nation’s industrial companies plunged 8.8 percent last month. Investors are worried that a slowdown in emerging markets will start to hurt U.S. companies that rely on overseas demand for a large portion of their profits. Manley said investors are awaiting third-quarter corporate results due in the next few weeks to determine where to place their bets as hand-wringing about the health of China overshadows corporate fundamentals. Data and Fed speakers: A gauge of pending home sales fell to its lowest level in five months, which points to hesitation from buyers amid rising prices, talk of rates being increased and a dearth of homes on the sales block.

Along with data that may give a clearer reading of China’s economic health, Friday’s U.S. non-farm payrolls release will be eyed for clues on whether rates might rise this year. Spending on cars and back-to-school purchases helped bolster purchases at retailers, but a closely watched measure of inflation by the Federal Reserve—the so-called PCE price index—showed little sign of moving toward the Fed’s target 2% level. In the afternoon, Chicago Fed President Charles Evans, speaking at the Marquette University Business Leaders Forum in Milwaukee, said the Fed should be in no hurry to raise interest rates. A slip into negative inflation would fuel speculation about further European Central Bank stimulus, six months after the euro zone’s central bank launched a massive asset-purchase program. VW LOWER AGAIN: Volkswagen shares were down 8.2 percent as German prosecutors opened an investigation against the company’s former CEO, Martin Winterkorn, to establish what his role was in the emissions-rigging scandal.

The U.S. 10-year Treasury note rose 13/32 in price to yield 2.1214 per cent as global concerns dented risk appetite and increased demand for safe-haven U.S. bonds. San Francisco Fed President John Williams, also a voting member, is due to talk about the economic outlook at the UCLA Anderson Forecast Center in Los Angeles at 5 p.m. The investigation aims to determine who was responsible for selling vehicles with manipulated emissions data, prosecutors in Germany said in a statement.

Commodities markets were also pressured, with U.S. crude oil futures losing 1.9 per cent to $44.84 a barrel while Brent crude lost 1.9 per cent to $47.66 a barrel as worries about the global economy outweighed an increase in U.S. investors’ crude holdings. Emerging markets remained a key pressure point due to fears that U.S. interest rates could soon start heading higher even while global growth is lacklustre and commodities markets are being battered. Movers and shakers: Energy Transfer Equity ETE, -11.79% plans to buy, then combine with, Williams Companies WMB, -10.72% after agreeing to a $37.7 billion deal. Earlier, Audi said 2.1 million of its vehicles have the emissions-rigging software installed, and the German motor authority gave VW until Monday to come up with a plan to fix affected cars. U.S.-listed shares of Novo Nordisk AS NVO, -1.15% climbed 2.8% after the Food and Drug Administration approved the Danish drug maker’s long-acting Tresiba insulin product.

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