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Market Overview: Oil and China slowdown concerns drive markets

US stocks ended slightly higher on Tuesday amid continued decline in WTI. The dollar strengthened as investor confidence was bolstered after the 6.9% annual growth rate of China’s economy in 2015 came in line with expectations. According to live dollar index data the ICE US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, rose 0.1% to 99.091. The S&P 500 closed less than 0.1% higher at 1881, with five of its ten main sectors finishing in positive territory led by utility and consumer staples stocks, up 1.5% and 1.2% respectively. Energy stocks closed down 2.2% with energy sector down more than 10. 7% since the beginning of the year. UnitedHealth Group gained 3%, after the health insurer’s quarterly earnings beat expectations. Bank of America shares fell 1.5% as fourth-quarter revenues missed expectations. Earnings of US corporations are expected to fall for the second quarter in a row, with aggregate earnings per share for the S&P 500 companies declining 5.99% year-on-year. The report of the National Association of Home Builders showed housing sector remains a bright spot of US economy: home builder sentiment index was steady in January and higher than the overall 2015 average. Market participants will be watching closely for the US inflation report due today at 14:30 CET. The headline inflation is forecast to edge up to 0.8% year-on-year in December from 0.5% in November. At the same time December Housing Starts and Building Permits will be published. Both are expected to fall.

European stocks posted the biggest gain in three weeks on Tuesday on expectations of more Chinese stimulus measures after China’s economy grew at the slowest pace in 25 years. The euro strengthened against the dollar as investors bought back the euros sold to fund purchases of high-yield currencies of emerging markets. The Stoxx Europe 600 index ended 1.3% higher, Germany’s DAX 30 rallied 1.5% to 9664.21, and France’s CAC 40 gained 2%. Mining shares advanced as China is a major buyer of commodities. BHP Billiton rallied 3%, Anglo American gained 2.6% and Sweden’s Boliden rose 1.1%. French oil company Total added 1.4% although the company announced it will likely report a 20% fall in 2015 earnings because of lower oil prices. Today at 10:30 CET December labor market data will be released in UK. The unemployment rate is expected to remain at 5.2% while average weekly earnings over a three-month period are expected to fall year-on-year to 2.1% from 2.4%.

Nikkei entered a bear market today after closing down 3.7% at 16,416.19, which is 20% below last year’s peak. Yen moved higher against the dollar with falling oil undermining market sentiment.

Asian markets are lower on negative sentiment as commodities slide persists. Hong Kong’s Hang Seng stock market index fell 3.5%. China’s stocks are falling despite expectations of more stimulus after weak growth statistics released on Tuesday. Yesterday the China Securities Journal reported that the government could raise deficit spending to around 3% of GDP.

Today at 16:00 CET Bank of Canada Rate Decision will be announced. The central bank is expected to keep the interest rate at 0.5%.

Oil futures prices resumed the decline today after Brent closed higher on Tuesday. March Brent crude rose 0.7% to $28.76 a barrel on London’s ICE Futures exchange on Tuesday, while February WTI crude fell 3.3% to $28.46 a barrel on the New York Mercantile Exchange. After sanctions on Iran were lifted investors are concerned higher crude oil exports from Iran will add to global glut at the time when global demand is expected to fall due to economic slowdown. International Energy Agency report released on Tuesday forecast around 1 million barrels a day of excess supply in 2016.

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