Daily Market Update – July 8, 2015 (8:00 AM)
You had to be impressed with yesterday’s 300 point turnaround on the DJIA.
Fortunately, that turnaround was in the right direction, because we’re not heading in the right direction this morning, as there were very large sell-offs in China overnight and those sell-offs spread to other Asian markets, even as European markets seem to be moving higher this morning.
The Chinese sell-off can’t be too much of a surprise, as lots of evidence shows that when there are attempts to manipulate markets those efforts tend to fall flat after a day or so. Generally, that is the situation seen during currency crises, when central banks move in to prop up their currencies, only to find that they can stem the tide for the briefest of moments. The only thing that can really correct the situation is time and following the natural cycle of ups and downs that characterize every market that has underlying value.
Ultimately, the force of markets isn’t very different from the forces of nature. Good luck trying to rein either in and showing them who’s the real boss.
Like most of these kind of events, they will pass, but it’s always of question of how long it will take and how we can withsatnd the pressures.
In the case of China, they aren’t very new to this capitalism game called the stock market and the speculative frenzy and heavy use of margin may have a depressing impact on their econopmy for quite a while, as debt is a heavy burden to lift.
You also have to wonder whether the Chinese government will know what to do, not that any government, including our own, has any kind of certainty over what to do when there is a bursting of a bubble. The fear is that the CHinese government will over-react and try to show the markets that they are the boss in a very heavy handed way.
The other question is how a Chinese stock market sell off will impact US markets.
This morning, the obvious impact is the one manifesting itself, as the futures are trading down triple digits, but that very first question applies here, too.
Just how long will that impact persist, particularly since US markets can benefit from perceived weakness elsewhere.
While our futures are down triple digits this morning, it’s another of these much weaker sessions that are actually improved over where the futures had been trading, so there’s always some hope for moderation to sneak into the market.
SOme of that moderation can come tonight, as earnings season begins. While it’s not very much of a barometer anymore, there’s no question that some good numbers from Alcoa could give markets some hope of an economy that is moving forward, although there has to be some concern for what a Chinese slowdown may do to the prospects of future revenues.
Some more moderation could come if the EU and Greece begin acting like adults, now that the deadline has passed and the referendum is history. Anything constructive on that end, short of a Greek exit from the EU should be of benefit to the markets, but like everything else, just for the briefest of moments.
Today will in all likelihood be a day of watching and wondering where it ends. Wednesdays are usually slow trading days and today should be no exception.
The only hope is that the hole that may be dug today isn’t so deep as to materially jeopardize the few positions scheduled for expiration this week and next.