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Equities falter. China in bear market

A stronger yen this morning in Asian trade as equities there continue to look weaker ahead of the weekend. The Shanghai Composite index has now entered a bear market, closing down 3.55% today and now ultimately 20% lower than the December high. Interventions by Chinese authorities are beginning to wain and lack effect as the cycle of capital outflows, weaker yuan and general volatility undermines investor confidence globally. According to Merrill Lynch, in the first 9 trading days of this year there has been global equity market cap loss of $5.7 trillion.

The euro remains bid against the dollar which only serves to underpin the lack of risk appetite as investors look to the safe haven of sovereign bonds. A lack of real commitment on the part of the ECB to up the ante in respect of QE and/or lower deposit rates is aiding upside proceedings. This strength is also undermining competitiveness amongst European exporters and manifested in the lower Cac and Dax, down 1.06% and 0.66%% respectively. Shares in Renault are still under pressure only down a more circumspect 1.79% as traders wait for additional news on fraud allegations.

The FTSE started the morning reasonably flat but miners are back under pressure following yesterday’s surge and the capital flow is firmly directed at the defensive sectors. For the time being, the 6000 level appears a bridge too far for investors and the potential for a drop back through the August lows increases the longer it stays below this psychological metric.

BHP Billiton (-6.16%) has said it will write down the value of its onshore US energy assets to the tune of $7.2bn following the rout in oil prices. It is set to cut its rig number and focus on preserving cash flow, something many investors will relate to in recent days.

With copper prices still below $2/lb, the volatility both to the upside and downside in share prices is likely to continue.

Anglo American (-8.61%)

Antofagasta (-5.87%)

Glencore (-4.31%)

Rio Tinto (-3.54%)

Shire (2.4%)
is leading the charge amongst the pharma sector despite the deal with Baxalta being at risk if it is unable to achieve investment grade rating. BOFA has raised its rating to buy from neutral.

Experian (+2%): The global Credit data company have this morning reported a 6 percent rise in third-quarter revenue at unchanged exchange rates, however the company still expects full-year profit to suffer from currency moves.

BT Group (+1.06%): British competition authorities have given the green light for BT Group’s 12.5 billion pound acquisition of mobile operator EE today, saying the deal would not substantially lessen competition in the broadband, fixed and mobile markets.

Oil prices are oscillating around the $30/bbl, aided by some rather dovish remarks from the Fed’s Bullard yesterday. A strong dollar is certainly not helping to elevate prices so if the prospect of several more rate hikes this year begins to look less likely in light of global economic conditions we may see a temporary bottom in the price.

FOMC member Dudley speaks later this afternoon so any dovish jawboning from him may well help curtail the current appetite for the greenback. Certainly, given that other western central bank concerns surrounding this global malaise is preventing any hawkishness, the Fed may well decide to go with the prevailing trend. Lower interest rates for longer.

The oil supply glut in juxtaposition with the lessening demand is wholly more difficult to contain and with Iran set further increase volumes following the lift of sanctions, the trend remains to the downside.

The macro calendar today is very much focussed on the USA. Final retail sales for 2015 is likely to show a decrease from November. A worse figure here will only add to the present market volatility. Industrial production is expected to decline 0.2% on top of the 0.6% fall last month while capacity utilisation is also expected to pull back marginally to 76.8% from last month’s 77%.

If we are to believe that the decline in oil prices is good for the economy consumer sentiment in the US may well spark higher to 92.7

We call the Dow lower to 16122 – 258 points lower.