January 6, 2016 - GLOBAL ECONOMY - Wall Street experienced another mini panic attack on Wednesday after North Korea claimed to successfully test a hydrogen bomb. The markets were already being spooked by the financial and economic turbulence out of China and the latest plunge in oil prices below $34 a barrel.
The Dow dropped 252 points, closing below 17,000 for the first time since mid-October. The S&P 500 fell 1.3% and the Nasdaq lost 1.1%.
It marks the Dow's worst start to a trading year through three days since 2008. The index also fell 276 points on Monday due to worries about China.
"Quite suddenly there seems to be a very long list of topics that represent game-changing risks to the market. North Korea is just one more factor," said Peter Kenny, an independent market strategist and founder of Kenny's Commentary.
The latest selloff began overnight after North Korea claimed it carried out its first hydrogen bomb test. U.S. officials told CNN it could take days to determine if North Korea's claims are legitimate. If true, the test would represent a major advancement by the North Korean regime and the latest geopolitical threat on top of the tensions between Saudi Arabia and Iran.
Stocks in Asia retreated and the South Korean won slumped over 1% against the U.S. dollar. Gold, which tends to rise during times of fear, jumped 1.4% to $1,093 an ounce.
"While the long-term investment implications are likely to be limited (as Pyongyang's previous nuclear tests have proven), the short-term impact will likely keep markets extra jittery," Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman, wrote in a client note.
Oil prices also took another hit on Wednesday. Crude plunged nearly 6% to $33.97 a barrel -- the lowest settle since 2008. The latest losses were triggered by concerns about demand from China, the strong U.S. dollar and the diminishing chances OPEC cuts production.
Worries about China also continue to ripple through the U.S. stock market. A new report released on Wednesday that showed the country's services sector grew at the weakest pace in 17 months in December.
China also continues to experience financial turbulence. Its stock market jumped 2% on Wednesday, rebounding from Monday's crash thanks to more efforts by the government to stabilize markets.
However, China's currency lost more ground and is now down about 1% against the U.S. dollar this year. The yuan's fall will likely cause more money to leave China and "creates havoc" for other manufacturing countries in the region, said Peter Boockvar, chief market analyst at The Lindsey Group. - CNN Money.
China Halts Stock Trading After 7% Rout Triggers Circuit BreakerChinese stocks in Hong Kong fell to the lowest level in four years as mainland shares plunged, forcing an early halt to trading for the second day this week after the central bank cut its yuan reference rate by the most since August.
Hong Kong’s Hang Seng China Enterprises Index tumbled 4.2 percent to the lowest level since Oct. 6, 2011. Trading of shares and index futures in the mainland was halted by automatic circuit breakers from about 9:59 a.m. after the CSI 300 Index slid more than 7 percent. The People’s Bank of China cut its reference rate on Thursday for an eighth straight day, fueling concern that tepid economic growth is prompting authorities to guide the currency lower.
“The yuan’s depreciation has exceeded investors’ expectations,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co. “Investors are getting spooked by the declines, which will spur capital outflows.”
The yuan weakened 0.6 percent to 6.5938 per dollar at 4:20 p.m. in Shanghai. The currency rallied from early declines in offshore trading, strengthening 0.4 percent in Hong Kong amid speculation the central bank propped up the exchange rate after setting a weaker fixing that sent the currency tumbling.
Huatai Securities Co. tumbled 10 percent and Citic Securities Co. declined 7.1 percent as financial stocks slumped. China Petroleum & Chemical Co. led losses in energy companies as oil futures slid to the lowest level in 12 years.
Mainland-listed companies are now 39 percent more expensive than their Hong Kong-traded peers.
“The gap will probably widen, with a higher discount for H shares, because you have to take into account the currency depreciation," said Paul Chan, Hong Kong-based chief investment officer for Asia excluding Japan at Invesco Ltd., which oversees $791 billion globally. “Earnings-per-share in Hong Kong dollar terms are lower, and I pay Hong Kong dollars for those shares.”
Analysts forecast earnings of companies in the H-share index, dominated by the nation’s biggest finance and energy companies, will fall 0.8 percent in the next 12 months.
The China Securities Regulatory Commission issued a rule during Thursday’s market halt, capping the size of stakes that major investors are allowed to sell at 1 percent of a company’s shares. The restriction, which will stay in place for three months, replaces an existing six-month ban on any secondary-market stock sales that’s due to expire Friday, the regulator said in a statement.
The CSRC also called an unscheduled meeting to assess circuit breakers and market conditions without coming to a decision on policy action, according to a person with direct knowledge of the matter. The regulator didn’t immediately respond to requests for comment. - Bloomberg.