Triple Trouble: China, Greece, Brazil Hit World Markets
uesday, Dec. 9, 2014
Triple Trouble: China, Greece & Brazil Hit World Markets
Not to mention the Fed’s latest trial balloon
Tightening in Beijing…
Resistance in Athens…
New phrases from the Fed…
Santa Claus rally coming?
Whether you were in Shanghai, Athens or somewhere in between, today was rough. Markets retreated after lightning struck several places at once.
The otherwise-fatal strikes will pass harmlessly to ground if your building has lightning rods. Not everyone is equipped, however, so storm-wary investors headed for the hills.
Should you follow them?
Note: Trouble viewing this message? Click here to read it on our web site.
The day started out fine. The Shanghai stock exchange has been on a tear this past month, based on hopes the Chinese government would enact stimulus measures to prop up economic growth.
The Shanghai Composite Index was up 2.4% when regulators in Beijing said they would tighten collateral standards on certain kinds of loans.
That is the opposite of stimulus, so investors were surprised.
Many hit the “sell“ button and the index swung lower to close with a 5.4% loss.
The next problem popped up in Greece, where people are still chafing under lender-imposed “austerity“ measures. Prime Minister Antonis Samaras said he was moving up the date for presidential elections to Dec. 17, two months sooner than scheduled.
This is a problem because a presidential deadlock would trigger parliamentary elections. There is a good chance that Syriza, a leftist anti-austerity party, would then take control of Greece’s government.
Syriza, if it gets power, might just tell the French and German banks, “Tough luck. Foreclose on us and try to collect.“ Greek stocks closed 13% lower while more weak economic news from Germany sent other European indexes down as well.
All the above happened before U.S. markets opened this morning. On top of that, we had our own lightning bolt, too.
Wall Street Journal reporter Jon Hilsenrath is known for his deep relationships with Federal Reserve officials. He often gets what look like inside scoops on policy changes. Some people think the Fed uses Hilsenrath to send “trial balloons“ to gauge market reaction without actually doing anything.
Hilsenrath’s front-page story today (which first appeared on the WSJ web site last night) says the Fed may remove the much-discussed “considerable period“ language from its policy statement next week.
Why is this a big deal? The Fed has maintained for a long time that it would wait a “considerable period“ after ending QE before it actually raised interest rates.
How long is a “considerable period“? They’ve kept that part vague — but with QE3 now gone, it’s getting harder to the Fed to stay ambiguous.
According to Hilsenrath, this month’s statement may remove those magic words. Wall Street interprets this to mean that rate hikes are coming early next year.
Higher interest rates may or may not help the economy, but the big banks love their nearly free capital.
Now that they might decide to take their toys and go home, this is making stock prices fall some more.
Finally, just to make the day completely perfect, Latin American markets acquired the hiccups. Just a few highlights …
Venezuela is suffering from insanely high inflation and declining oil revenue.
Ecuador — which defaulted on its national debt when oil tumbled in 2008 — has to either take on more debt or make severe government spending cuts.
Brazil’s Ibovespa index dropped to an eight-month low, putting it on the brink of a bear market.
Brazil’s state-controlled oil company, Petrobras (PBR), is embroiled in a serious corruption scandal. I watched this because we had PBR in my Global Trend Trader service earlier this year.
I told subscribers to sell PBR (at a loss) in early November. And while I hate taking losses, I’m glad I did because the only thing worse taking a loss is taking an even-bigger loss.
Since then, PBR has traded considerably lower and is dragging down other Brazilian stocks with it.
Remarkably, with all this news emerging, the markets didn’t completely collapse. The Nasdaq Composite even turned around and rose into the green this afternoon. That’s impressive.
“Seasonality“ traders who study calendar patterns will tell you that early December is usually weak, but often gives way to a year-end “Santa Claus Rally“ around Christmas and New Year’s Eve.
We’re certainly getting the first part of that pattern this year.
No one knows if Santa will bring a stock rally, but conditions look favorable. A market that can digest so much bad news without totally cratering has a lot of internal strength. We’ll see if it can stage a turnaround.
As always, I welcome reader feedback on my afternoon thoughts or any other topics. You can leave a comment on our website or send me an e-mail.
The afternoon turnaround didn’t help every stock, but the tone was much better than in the morning. Here are some closing headlines.
The lagging Russell 2000 Small Cap index finally showed its stuff today. The smaller stock gauge ended up almost 3% from its morning low, and dragged some big boys out of their funk, too.
Drug maker Merck (MRK) pulled back 3% after an embarrassing episode. Hours after Merck announced an $8.4 billion purchase of Cubist Pharmaceuticals (CBST) Monday, a court invalidated some key Cubist patent claims.
Buyer’s remorse? If the ruling stands, analysts say Merck may have overpaid for CBST by as much as $3 billion.
Newmont Mining (NEM) bounced 4.9% higher as gold bullion staged a solid rally today.
Crude oil rose after touching new lows yesterday. Struggling energy service stocks looked a little better, too. Halliburton (HAL) gained 2.4% today.
Lower fuel prices aren’t helping cut-rate Spirit Airlines (SAVE). The stock plunged 12.7% after a top analyst downgraded the shares to “Market Perform“ status.
Brutal competition from Southwest Airlines (LUV) is hurting Spirit, which some travelers say takes pleasure in brutalizing its own passengers.
In fashion news, embattled Abercrombie & Fitch (ANF) CEO Mike Jeffries stepped down. ANF investors cheered his departure by sending the stock up 8%.
Yoga fashion retailer Lululemon (LULU) breathed deeply as its stock floated 6.2% higher. The company reports financial results Thursday morning.
Good Luck and Happy Investing,
Uncommon Wisdom Daily