Flurry of economic data offer a mixed picture of the U.S. economy
U.S. stocks ended a wild session sharply lower on Wednesday, 20 January 2016, but trimmed heavier losses scored earlier in the session as a modest bounce off session lows by crude-oil prices provided some relief. Meanwhile, a flurry of economic data offered a mixed picture of the U.S. economy, but did little to hearten the gloomy market sentiment.
The Dow Jones Industrial Average closed down 249.28 points, or 1.6%, at 15,766.74, recovering from a 565-point-drop earlier on Wednesday afternoon, its worst one-day point drop in the past 12 months. The Nasdaq Composite erased most of a 145-point drop to close 5.26 points, or 0.1%, lower at 4,471.69. The S&P 500 closed down 22 points, or 1.2%, at 1,859, after earlier diving as low as 1,812.22,
Ahead of today's session, the People's Bank of China disappointed market participants by not enacting new stimulus measures in light of yesterday's GDP report. The release showed that China's economy grew 1.6% quarter-over-quarter in Q4 and 6.8% year-over-year, and elicited speculation that China would institute new stimulus provisions. Asian and European indices sold off in response to inactivity from the central bank, dragging oil prices lower with them.
Asian and European stock markets were also solidly lower overnight. The culprit continues to be slumping crude oil prices that are spooking world financial and commodity markets. Nymex crude futures dropped to another 12-year low below $27.00 a barrel overnight. Worries about less demand for world-wide goods from China, the world's second-largest economy, are also weighing on stock markets around the globe. There is also concern that heavy capital outflows from China will further damage China's economy.
U.S. economic data released Wednesday included the consumer price index, which had a reading of down 0.1% in December. This report only adds to the price deflation worries in the world marketplace. The European Union is struggling to reflate its consumer and producer prices, but with little success.
The U.S. consumer-price index dropped 0.1% in December, but core CPI, which excludes food and energy, rose 0.1%. Though the headline number came in lower than expected, the core was in line with economists' expectations. For all of 2015 inflation rose just 0.7%, the second slowest rate in 50 years.
Housing starts fell 2.5% last month, missing economists' expectations, and indicating that home builders cut back slightly on new construction in the final month of 2015.
The early-2016 world stock market meltdown and financial market worries are producing growing notions the U.S. Federal Reserve will not be able to raise interest rates any time soon, following the first rate hike in nine years that occurred in mid-December. Some are even saying the next move by the Fed will be further quantitative easing of its monetary policy, to ward off another economic recession.
The European Central Bank's regular monetary policy meeting is on Thursday. Traders are wondering if the ECB will announce further monetary policy stimulus measures on Thursday, or at least suggest more stimulus is coming down the road.
A rout in the U.S. stock market on Wednesday, 20 January 2016 prompted further safe-haven buying in the gold market as the precious metal's price pushed back above the key $1,100.00 level.
February Comex gold ended up $17.70 at $1,106.80 an ounce. March Comex silver ended up $0.054 at $14.175 an ounce.
On the New York Mercantile Exchange, February WTI crude which expired at Wednesday's settlement, fell $1.91, or 6.7%, to finish at $26.55 a barrel. That was the lowest settlement for a front-month contract since May 7, 2003. March crude, which is now the front-month contract, dropped $1.22, or 4.1%, to $28.35 a barrel.
Brent crude for March delivery, the global oil benchmark, ended down 88 cents, or 3.1%, to $27.88 a barrel on London's ICE Futures exchange. March crude, which is now the front-month contract, dropped $1.22, or 4.1%, to $28.35 a barrel.
The International Energy Agency said in a report released Tuesday that the world may soon drown in oversupply.
Citi cut its oil-price forecasts on the back of concerns about the Chinese economy and sees both benchmarks averaging $34 a barrel this quarter and $31 in the next.
Today's affair generated one of the highest volume totals of the year with more than 1.4 billion shares changing hands at the NYSE floor.
Treasuries began their day sharply higher as the selloff in equities attracted safe haven flows. By the close the major indices had trimmed their deepest losses and the benchmark note pulled back from its high with the yield on the 10-yr note lower by seven basis points at 1.99%.
Tomorrow, weekly initial claims (consensus 280k) and the January Philadelphia Fed Survey (consensus -4.0) will cross the wires at 8:30 ET.
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