China Slump, Geopolitical Tensions May Trigger Steep Losses

(RTTNews) - The major U.S. index futures are pointing to a lower opening on Monday, with sentiment reflecting the aggravation of risk aversion, as China-turmoil hits the markets. Commodities are rallying as geopolitical worries surrounding the Iran-Saudi Arabian conflict drove up prices, especially of oil, which is moderately higher after ending 2015 with over a 31 percent loss. The dollar is firmer except against commodity currencies. The near 7 percent sell-off in China earlier in the day could lead the U.S. markets to an extremely negative start to the year. Traders may also pay attention to two separate U.S. manufacturing readings due shortly after the markets open.

U.S. stocks ended the last week of the year 2015 on a down note, capping off a year of volatility engendered by Fed rate hike fears and the precipitous slump of commodities, spearheaded by oil.

Last Monday, the major averages came under pressure, as lower commodity prices served as a drag. Nevertheless, the averages recovered from their early slump and ended modest lower. Helped by a stalling in the retreat of oil prices and a positive U.S. consumer confidence reading, the averages rebounded on Tuesday, ending notably higher.

Weak pending home sales data and oil's retreat pulled the major averages moderately lower on Wednesday. Notwithstanding a rebound by oil prices, stocks retreated notably on Thursday amid light volumes ahead of the extended weekend.

For the week ended December 31st, the Dow Industrials lost 0.72 percent, while the S&P 500 Index and the Nasdaq Composite lost about 0.80 percent each.

The Dow, at 17,425, ended down 2.23 percent for the year and 4.85 percent off its record closing high of 18,312. The S&P 500 Index was also in the red for the year, closing 0.73 percent lower at 2,044, down 4 percent from an all time closing high of 2,129. The Nasdaq Composite ended at 5,007, up 5.73 percent for the year but down 4.05 percent from its record closing high of 5,219.

Among the sectors, the NYSE Arca Gold Bugs Index fell 4.76 percent for the week andthe NYSE Arca Oil & Gas Index, the Philadelphia Semiconductor Index and the NYSE Arca Airline Index all lost over 3 percent.

Currency, Commodity Markets

Crude oil futures are rising $0.65 to $37.69 a barrel after finishing the week ended December 31st down $1.06 or 2.78 percent at $37.04 a barrel. The commodity declined about 31 percent for the year, marking a drop for the second consecutive year.

Gold futures, which fell $15.70 or 1.46 percent to $1,060.20 an ounce in the previous week, are currently climbing $17.30 to $1,077.50 an ounce.

Among currencies, the U.S. dollar was higher in the week ended December 31st, with the buck adding 0.18 percent against the yen over the week to 120.55 yen. The dollar gained 0.95 percent against the euro to $1.0856 a euro.The dollar is currently trading at 119.22 yen and is valued at $1.0880 a euro.

Asia

The major Asian averages experienced an intense sell-off, as China halted trading in the afternoon after the Shanghai Composite Index plunged 7 percent in reaction to factory activity data. Oil's climb in the wake of geopolitical tensions also triggered anxiety. The New Zealand market was closed for a public holiday.

Risk aversion heightened, sending the yen higher and this spooked Japanese investors. The Nikkei 225 Index opened lower and moved roughly sideways till early afternoon trading. Thereafter, the average declined steadily before ending down 582.73 points or 3.06 percent at a more than one-month closing low of 18,451.

All but eight of the index components declined in the session, with the selling broad based. J Front Retailing, Sumitomo Chemical and Advantest were among the worst decliners of the session. On the other hand, some oil stocks advanced.

Australia's All Ordinaries Index, which spent much of the morning in positive territory, pulled back below the unchanged line, tracking the sell-off in China. Thereafter, the index remained mostly below the unchanged line, ending down 21.80 points or 0.41 percent at 5,323.

Most sectors declined, led by financial stocks, while energy stocks rose strongly. IT and healthcare stocks also gained ground.

China halted trading roughly 90 minutes ahead of the close. The Shanghai Composite Index was at a 2-1/2 month low of 3,296 when trading was halted, down 242.92 points or 6.86 percent. Hong Kong's Hang Seng Index lost 587.28 points or 2.68 percent before ending at a 2-week low of 21,327.

On the economic front, Chinese manufacturing data released by Markit and Caixin showed that manufacturing activity continued to contract in December. The PMI eased to 48.2, belying expectations for a 0.3-point increase to 48.9, with weak orders and a renewed decline in output impacting the number.

The official manufacturing PMI released by the National Bureau of Statistics and the China Federation of Logistics and Purchasing over the weekend showed a small increase to 49.7 in December from 49.6 in November. The official non-manufacturing PMI rose to 54.4 from 53.6 in the previous month.

Data released by the Australian Industry Group showed that manufacturing activity expanded at a slower pace in December, with the corresponding PMI at 51.9, down from 52.5 in November.

The final Nikkei/Markit manufacturing PMI for Japan was unchanged at 52.6 in December, up 0.1 points from the flash estimate.

Europe

European stocks have also moved sharply lower, as the Chinese sell-off generated negative sentiment. The averages opened notably lower and fell further in early trading. The French CAC 40 Index, the U.K. FTSE 100 Index and the German DAX Index are down about 2 percent or more. The weakness has lingered despite the release of final manufacturing reports from the region that were mostly positive.

In corporate news, E.ON said it has separated its operations from Uniper, effective January 1, 2016. The company expects the spin-off of Uniper to take place later in 2016 following approval by E.ON shareholders.

On the economic front, final readings released by Markit showed that its eurozone manufacturing PMI came in at 53.2 in December, up from November's 52.8 and the flash reading of 53.1.

The German manufacturing PMI was also upwardly revised to 53.2 from 53, while in November the index was at 52.9. However, France's December manufacturing PMI was downwardly revised to 51.4 from 51.6, although it is still up from 50.6 in November.

The Markit/CIPS U.K. manufacturing PMI unexpectedly fell to 51.9 in December from 52.5 in November, while the consensus estimate was 53.

U.S. Economic Reports

Jobs and private sector activity data are among the key economic readings scheduled for release in the unfolding week, as traders seek additional clarity on the economic outlook in the New Year. The spotlight is likely to be on the Labor Department's monthly non-farm payrolls data for December as well as ADP's private sector payrolls data for December, weekly jobless claims data, the results of the Institute for Supply's national manufacturing and non-manufacturing surveys for December and Markit's final manufacturing and service sector PMIs for December.

Monthly U.S. auto sales for December, some Fed speeches and the minutes of the December FOMC meeting, where the Fed began its monetary policy normalization by announcing its first hike in nearly a decade, could also be on the radar. The Commerce Department's construction spending, trade balance, factor orders, and wholesale trade data, all for November, and the Federal Reserve's consumer credit report for November round up the economic events of the week.

Markit is set to release its final U.S. manufacturing PMI data for December at 9:45 am ET. Economists expect the index to be upwardly revised to 52.8 from the flash estimate of 51.3, up slightly from the November reading of 52.6.

The Institute for Supply Management is due to release the results of its national manufacturing survey for December at 10 am ET. The consensus estimate calls for an increase in the manufacturing PMI to 49.2 from 48.6 in November.

The manufacturing PMI dropped to 48.6 in November from 50.1 in October, with a reading below 50 indicating a contraction in manufacturing activity. The pullback into contraction territory came as a surprise to economists, who had expected the index to climb to a reading of 50.5.

Also at 10 am, the Commerce Department is scheduled to release its construction spending data for November. Economists expect construction spending growth of 0.7 percent month-over-month.

Construction spending rose more than expected in October, reaching its highest level in nearly eight years. Construction spending climbed 1.0 percent to an annual rate of $1.107 trillion in October. Economists had expected spending to rise by 0.6 percent.

Stocks in Focus

Fluor (FLR) said it was awarded two subcontracts by Westinghouse Electric to manage the construction workforce at two of its nuclear plant projects. The company said it has booked $5 billion in contracts in the fourth quarter of 2015.

Reports suggest that Shire (SHPG) is in advanced talks to buy Baxalta (BXLT), a spin-off unit of Baxter (BAX), for about $32 billion in cash and stock. It may be recalled that earlier in July, Baxalta spurned a $30 billion all stock offer by Shire.

Tesla (TSLA) announced it delivered 17,400 cars in the fourth quarter, including 17,192 Model S cars, taking the total deliveries for the year to 50,580.

Fiat (FCA) announced that the separation of Ferrari (RACE) from the company was completed on January 3rd, 2016. Fiat shareholders are eligible to receive one share of Ferrari for every 10 Fiat shares they hold.

Comtech Telecom (CMTL) said it has extended its offer to acquirre all class A and class B common shares of Telecommunication Systemms at a price of $5 per share to January 20th, 2016 from January 5th, 2016.