CHINESE STOCKS LEAD EMERGING MARKETS LOWER -- THAT'S ALSO HURTING AUSTRALIAN MARKETS -- U.S. STOCKS REMAIN UNDER PRESSURE -- THE DOW IS THREATENING ITS 50-DAY AVERAGE
DOW THREATENS 50-DAY MOVING AVERAGE...Global stocks remain under pressure. My last message on Wednesday suggested that the continuing drop in bond yields and economically-sensitive commodities put the mid-week stock rebound in doubt. That still remains the case, not just here in the states; but even more so in foreign markets with closer exposure to China. Yesterday's late stock rebound didn't get very far, and selling has resumed this morning. Chart 1 shows the Dow Industrials threatening its 50-day moving average. A close below that potential support line would put the Dow at the lowest level of the new year, and signal even more selling.
SECTORS SLIDE... Ten sectors in the red today also show a risk-off attitude. Energy and materials are two of the day's weakest sectors continuing the flight from those commodity-related groups. Semiconductors are leading a retreat in tech stocks. Transports are having another bad day, and are weighing on the Industrial SPDR (XLI). Bank stocksare weighing on financials. Small caps are also having a bad chart day. Defensive stocks like staples and utilities are holding up a bit better. The Consumer Discretionary SPDR (XLY) is the day's strongest sector. It's gain today, however, is due mainly to a 9% jump in Amazon. com which accounts for nearly a quarter of the XLY (23.7%). I take that as an aberration in that economically-sensitive ETF that also includes cruise lines, gaming, hotel, and tourist-related stocks which have come under a lot of pressure owing to the coronavirus in China.
CHINA LEADS EMERGING MARKETS LOWER...The weekly bars in Chart 2 show the Emerging Markets iShares (EEM) losing nearly 6% this week. And makes them the weakest part of the global stock market. Not surprisingly, those losses are being led by Chinese stocks. Chart 3 shows China Large Cap iShares (FXI) losing even more. And in heavy trading. [Although the Shanghai stock market is closed this week for the Lunar holiday, Chinese stocks are trading in Hong Kong and the U.S. which includes China-related ETFs. Shanghai trading reopens on Monday]. The EEM is bearing down on its 40-week average; while the FXI has already fallen below its red line. Asian stocks with close trading ties to China like South Korea and Taiwan have also fallen sharply this week. So have stocks in Brazil and Russia which export commodities. Australian stocks and its currency are also under pressure for the same reasons.
AUSTRALIAN MARKETS ARE ALSO FALLING...Weakness in Chinese markets is also spilling over to Australia. That's because China is Australia's biggest trading partner. And buys most of Australia's natural resources. That includes copper which has been in free fall lately. Falling commodity prices have taken a toll on resource-related currencies like the Aussie Dollar. [That includes the Canadian Dollar which has lost ground recently]. Chart 4 shows the $XAD tumbling to the lowest level since October. That's taken a negative toll on Austrialian iShares (EWA) which are made weaker by being quoted in U.S. dollars. Chart 5 shows the EWA falling below its 50-day moving average today.
FOREIGN STOCKS WEIGH ON GLOBAL UPTREND... It's not surprising that foreign stocks with closer ties to China are leading the current downturn. That includes foreign developed and emerging markets both of which are losing more ground than the U.S. But weakness there usually leads to weakness here. Chances are that U.S. stocks will prove to be more resilient than foreign stocks. But it's hard to imagine U.S. stocks rising while the rest of the world is sliding.
