Signs of the global economic slowdown are starting to show up in the United States.
Equities sold off dramatically and retail sales and industrial production numbers were considerably weaker than expected, belying the notion that the U.S. will be able to ride out the decline in economic growth spreading around the world and suggesting that the start of the New Year will be no better than the old.
Equities took their notice from large declines in Asian and European stocks. The Dow Jones average plunged 390.97 points finishing at 15,988.08 the lowest close since August 25th. It had been down as much as 536 points. The S&P 500 fell 2.16 percent to 1,880.29 and the NASDAQ dropped 2.74 percent to 4,488.42.
Crude oil plummeted below $30 a barrel for the first time in twelve years with West Texas Intermediate closing down 4.90 percent at $29.67 and its European counterpart Brent ending off 5.41 percent at $29.21.
The advance figure for U.S. retail sales dropped 0.1 percent in December as forecast, but the sales minus automobiles number fell 0.1 percent, substantially less than the expectation for a 0.2 percent gain. The so-called 'retail sales control group', the measure which best duplicates the consumption component of GDP dropped 0.3 percent, far below the 0.3 percent rise forecast, indicating that fourth quarter GDP will struggle to reach 1.0 percent annualized. Annual retail sales were up just 2.1 percent in 2015, the weakest yearly increase since 2009.
The Atlanta Fed reduced its estimate for annualized fourth quarter GDP growth to 0.6 percent from 0.8 percent on January 8th, citing the weakness in consumption following December's retail sales figures.
Industrial production fell 0.4 percent in December, twice the estimate and the prior month was revised down to -0.9 percent from -0.6 percent. Production numbers have fallen since August and are negative for 10 of the last 12 months. Yearly production was off 1.75 percent in December and ahead only 1.31 percent for the year, the worst performance for the industrial sector since 2009.
Capacity utilization, the percentage of the U.S industrial base that is in production in any month, dropped to 76.48 percent, missing its 76.8 percent forecast. It is the lowest usage of the U.S. industrial base since July 2013.
Yields on 10-year Treasury notes briefly dipped under 2 percent and closed at 2.0347 percent. The rate on this benchmark bond has now fallen 27 basis points since reaching its post Fed Funds increase high at 2.3050 on December 29th. Yields on the 2-year Treasury finished at 0.8500, 24 basis point below their post FOMC peak of 1.0911 on December 29th. Gold surged the most in six weeks closing at $1088.88.
When the FOMC raised the Fed Funds rate at the December 16th meeting, the first official rate hike in nine years, its own analysis projected four more increases in 2016. Since that meeting, market turmoil, beginning in China but taking hold around the world, and increasingly poor reading from the U.S. economy have undermined that consensus.
If the credit markets are not yet pricing in a recession, falling rates are making it increasingly unlikely that the Fed will be able to keep its 1.0 percent program intact.
American equity and credit markets are closed on Monday for a holiday, currency markets trade normally.
Chief Market Strategist
WorldWideMarkets Online Trading