Stock Markets Decline on China Regulation Concerns, Possible Greek Default

Kristian Rouz – Equity markets closed in the red across the world on Friday, with investors cashing out after a buoyant rally during the recent couple of days. Also, market participants are uncertain of the looming US Fed hike and its timing as fresh US inflation data was optimistic, paving way for a  soon expected hike.

Weak Chinese futures markets added to the global bearishness, as Beijing might consider itself forced to impose new economic regulations in an attempt to spur staggering growth, while in Europe, Greece is balancing on the verge of a default, poised to use up all of its remaining monetary reserves in order to stay afloat.

Friday’s trading in Asia-Pacific was mostly a sell-off, with the Australian S&P/ASX 200 Index retreating 1.17% as miners, consumer goods, retail, financials, and manufacturing sector all posted losses.

Material were affected by the ever-falling iron ore price. Iron is one of Australia’s main exports, most of which is heading for mainland China, hence Australian markets are a good indicator of the black-box China economy.

ASX 200 posted its biggest weekly retreat since January, losing 1.5%. Among energy shares, Australia’s oil firms were all down as crude price dipped. Aussie financials were dragged down after an optimistic employment report, meaning the Reserve Bank of Australia (RBA) would not implement another round of monetary stimulus anytime soon.

In Japan, the Nikkei 225 slid 1.2% as a stronger yen is harmful for the Japanese exporters. The looming earnings season only added to the investors’ nervousness. The broader Topix Index lost 0.69%.

Bourses in mainland China rallied, however, posting fresh 7-year highs. Risky assets were on demand mostly, with traders seeking opportunities to make quick profits and then cash out as Beijing once again indicated its willingness to take stimulus policy measures to support growth. Shanghai Composite added 2.2%, the CSI 300 Index rose 1.83%. Hong Kong’s Hang Seng index retreated 0.31% on US Fed interest hike uncertainty.

European stock also retreated on Friday, with the broader FTSEurofist Index losing 1.8%. Speculation of possible regulatory changes in China triggered a sell-off in Chinese futures in Europe. An outage in Bloomberg terminals across Europe paralyzed trading for a while, with investors selling equities as soon as trading resumed, concerned of China having banned margin trading.

Greece’s ATG Index lost 3% amidst the nation’s standoff with international creditors. Greece might suffer a default on its debt in case Athens fail to deliver a solution satisfactory for all parties involved.

Weak corporate earnings also weighed on European stocks, with the Swedish clothes-maker SKF and the chemical firm Syngenta losing 8.2% and 4.4%, respectively, after reporting a decline in demand for their produce.

Wall Street only followed the global downward trend on Friday, retreating the most in three weeks. The ongoing earnings season was a factor, as American Express posted weaker-than-expected profits in Q1, losing 4.4% its stock. Advanced Micro Devices Inc. fell 10% having posted a pessimistic Q2 outlook.

The S&P 500 Index retreated 1.1% Friday, losing 1% this past week. The Dow fell 1.5%, and Nasdaq Composite shed 1.5%. Trading volumes were 6.4% above quarterly average, at 7.1 mln equities bought and sold.

US inflation data arrived Friday, suggesting consumer prices accelerated for a third straight month in March. A separate report also indicated consumer confidence rose in April to nearly the best in 8 years, i.e. since the advent of the Great Recession, a good sign for the demand side of the economy. 

US energy stocks slid 0.8% as crude retreated, with Brent sliding 0.8% to $63.45/bbl. US crude might surpass the $60 threshold as early as next week, market participants say, as global demand for oil is explicitly better now than last year. However, abrupt swings in energy market are a possibility as US drillers can easily re-commission the now-idled oil derricks.

Meanwhile, oil rigs count is declining in the US, at 734 units Friday compared to nearly 1,600 late last year. Bank of America Merrill Lynch projects US crude to sell at $41/bbl, Brent at $48/bbl by the end of Q2.