Global stocks were lower again on Wednesday while crude oil prices staged their biggest rebound in more than 2 ½ years.
U.S. stocks were down sharply from the start on disappointing December retail sales and a J.P. Morgan earnings report that failed to meet expectations. But stocks staged a rebound later in the day to reduce the day’s losses by a half or more. The S&P 500 closed with a 0.6% loss after having been down more than 1.7% in the early afternoon. NASDAQ managed to reduce a 1.4% loss to 0.5% at the close. The Dow closed down 1.1% after erasing about half of its earlier decline. Financials were the worst performing of the S&P’s 10 sectors, falling 1.4%, although they had been down twice that earlier in the session. The group was led downward by JPM, also a Dow component, which dropped 3.5%. Meanwhile, oil prices built on Tuesday’s late rally, with WTI climbing more than 5% to about $48.50 a gallon.
Stocks got off to a bad start following the release of some disappointing economic news.
- U.S. retail sales dropped an unexpectedly large 0.9% in December, well below the 0.1% decline the Street was looking for. That was the largest monthly decline in nearly a year. Even excluding gasoline sales, which fell 6.5% due to plunging prices, total sales were still down 0.4%. At the same time, the Commerce Department revised downward the previous two months’ figures. For all of 2014, retail sales rose 4%, the smallest annual increase since the recession ended in 2009, although sales were up 4.8% ex gasoline (as compared with 4.7% in 2013).
- While upgrading its forecast for the U.S. economy, the World Bank cut its estimate for global growth this year to 3% from its June forecast of 3.4%. The Bank said risks to the global recovery are “significant and tilted to the downside,” adding that its forecast for world growth next year was reduced to 3.3% from 3.5%. It raised its 2015 projection for the U.S. to 3.2% from 3% earlier, but cut its forecast for the euro zone to 1.1% from 1.8%. China was cut to 7.1% from 7.5%. The bank also cut its forecast for emerging markets to 4.8%.
The economic news was good for bonds, though, as the yield on the 30-year Treasury security fell to a record low during the day. The price of the long bond jumped more than 1 ½ points early in the session to reduce its yield to a record low of 2.39% before ending the day at 2.46%. The Treasury sold $13 billion of new 30-year bonds at 2.43%, which was also a record low. Euro zone sovereign bond prices were also higher in price, lowering yields about seven basis points for Italy and Spain and five bps for benchmark German bunds. An adviser to the European Union Court of Justice gave conditional approval to asset purchases by the European Central Bank as part of its Outright Monetary Transactions program, which has been challenged in the court. The decision, while not binding, could ease the way for the ECB to go ahead with a plan to start buying government bonds as early as next week’s meeting. The ECB called the opinion an “important milestone.”
European stocks fell even more sharply than those in the U.S. following two straight days of gains, although they ended off their lows of the day. The broad-based Stoxx Europe closed down 1.5% after being down as much as 2% earlier in the day. French and Italian stocks lost 1.6% while the main German and Spanish indexes lost about 1.2%. Asian stocks were also lower. Japan’s Nikkei 225 dropped 1.7% as the yen rose to more than 117 to the dollar, a four-week high. The currency had been trading at over 120 to the dollar early this year. Shanghai and Hong Kong stocks fell 0.4% while Indian stocks fell 0.3%.
Reports/dates/facts/links worth paying attention to over the next week:
- January 15: Weekly unemployment claims; producer price index (December); Philadelphia Fed survey (January); New York Fed Empire State manufacturing survey (January).
- January 16: U.S. consumer price index (December); German CPI (December); U.S. industrial production (December); University of Michigan consumer sentiment index (January).
Copyright © 2015 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.