Weak economic data from China prompt major sell off
U.S. stocks closed sharply lower on Thursday, 23 January 2014 as weak economic data from China prompted investors to sell resource stocks and emerging-markets assets and seek safety in bonds, gold, and high-dividend paying sectors. Although stocks sold off throughout the day, the weakness actually started during the overnight futures session when three China-related developments began fueling the risk-off sentiment.
The Dow Jones Industrial Average fell to a five-week low, shedding 175.99 points, or 1.1%, to 16,197.35. The blue-chip index recorded its third straight session of losses. The Nasdaq Composite lost 24.13 points, or 0.6% to 4,218.87, trimming gains it clocked in since the start of the year. The S&P 500 fell 16.40 points, or 0.9%, to 1,828.46, breaking a two-day winning streak.
Nine out of ten sectors registered losses. Losses were led by financials and materials sectors. Only telecoms, a sector whose stocks are known for their dividend yields, ended higher.
Microsoft Corp. shares rallied 3.7% in the after-hours market, after the company reported better quarterly earnings and revenue than analysts expected.
In overnight news, China's flash purchasing managers index (PMI) fell to 49.6 in January from 50.5 in Decemberthe lowest reading in six months. A PMI reading below 50.0 suggests contraction in the manufacturing sector. This news pressured Asian stock markets and to a lesser degree European stocks. The weaker data is also a bearish underlying factor for the raw commodity sector, as China is the world's largest consumer of metals and other raw commodities.
Meantime, the data firm Markit on Thursday reported the European Union's preliminary PMI came in at 53.2 in January from 52.1 in Decemberthe best reading in two and one-half years. This latest economic data from the EU corroborates other recent data that suggests the bloc has pulled out of economic recession. Thursday's report also hints the European Central Bank will not have to implement additional monetary stimulus measures.
At Wall Street, the day was also heavy in terms of economic data. The initial claims level increased to 326,000 from a downwardly revised 325,000 (from 326,000) while the consensus expected the reading to increase to 327,000. The seasonal problems from the holiday period have ended, and, as expected, the initial claims have settled around 330,000. The numbers suggest that there have been no notable changes in labor conditions over the last couple of months.
The November Housing Price Index from the FHFA increased 0.1%, which followed an uptick of 0.5% observed during the prior month.
December existing home sales increased 1.0% to 4.87 million from a downwardly revised 4.82 million (from 4.90 million). The consensus pegged December existing home sales at 4.90 million. For the year, 5.090 million homes were sold in 2013. That was the most homes sold since 2006. Year-over-year sales in December fell 0.6%. That was the second consecutive, monthly year-over-year decline. Before November, existing home sales had not declined on a year-over-year basis since June 2011.
The Conference Board's Index of Leading Indicators increased 0.1% in December after increasing an upwardly revised 1.0% (from 0.8%) in November. The consensus expected the leading indicators to increase 0.2%. On the surface, the drop in the index seems like economic growth is poised for a slowdown. However, the seasonal biases that negatively impacted the initial claims level throughout December resulted in a 0.34%age-point reduction in the growth of leading indicators.
Bullion prices ended higher on Thursday, 23 January 2014 snapping a two-day skid with the prospect of India easing curbs on gold imports, a drop in U.S. equities and a weaker dollar lifting prices to their highest close in more than two months.
Gold for February delivery jumped $23.70, or 1.9%, to settle at $1,262.30 an ounce on the Comex division of the New York Mercantile Exchange. March silver also climbed 17 cents, or 0.9%, to $20.01 an ounce.
Crude oil futures on Thursday, 23 January 2014 topped $97 a barrel for their highest close in more than three weeks as prices for natural gas rose for a third-straight day and heating oil rallied. Traders mulled data from a U.S. government report showing the first crude inventory climb in eight weeks, a fall in distillate supplies that was much more than expected and a rise in natural-gas stockpiles that matched market expectations.
March crude oil advanced 59 cents, or 0.6%, to settle at $97.32 a barrel on the New York Mercantile Exchange. It was trading around $97.11 shortly before the release of the government supply data, briefly dipped below $97 after it and then recovered.
As per latest EIA report, the U.S. Energy Information Administration said Thursday that crude-oil supplies rose 1 million barrels for the week ended 17 January 2014. Distillate stockpiles, which include heating oil, fell by 3.2 million barrels while gasoline supplies climbed 2.1 million barrels. Market was looking for distillate inventories to fall by 1.2 million barrels and gasoline supplies to rise by 1.7 million barrels.
Indian ADRs ended weak on Thursday. In the IT space, Infosys shed 0.47% at $61.20 and Wipro was down 0.74% at $13.42. In the banking space, ICICI Bank fell 2.34% at $35.92 and HDFC Bank tumbled 3.11% at $33.62. In the other sectors, Tata Motors slipped 2.47% at $30.47 and Dr Reddys Laboratories was down 0.46% at $43.06.
There is no economic data of note on tomorrow's schedule.
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