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    Markets Crack as China Takes a Breather, Dollar Falls, Yen at 14 Month High

    With the China closed for a week of New Year celebration, world markets were free to contemplate their own immediate future without the trading signals of mainland volatility. The view ahead pleased almost no one.

    A late day recovery in U.S. markets took some of the edge from the damage to stocks, the dollar and bond yields and helped oil move back above $30 but the reverse just underlined the magnitude of the earlier collapse.

    The Dow finished off 1.10 percent, 176.92 points at 16027.05, giving the best known U.S. index its lowest close since January 28th.   The broader S&P index fell 1.42 percent finishing at 1853.44, down 26.61 points.

    Once again the Nasdaq Composite was the heavy looser, plunging 1.82 percent, 79.39 points at 4283.75. As with Friday's close, the index is plumbing levels not seen since October 2014, in today’s case the 16th. 

    But the equity losses were substantially worse during most of the session. At the nadir around 2:30 pm, the Dow was off 2.48 percent at 15803.55, the S&P 500 2.74 percent 1828.46 and the Nasdaq was lower by 3.44 percent at 4212.812. 

    Those wider declines were much closer to the losses in Europe where the FTSE in London shed 2.71 percent 158.70 points, the DAX in Frankfurt, lost 3.30 percent, 306.87 points and the Paris CAC 40 dropped 3.20 percent, 134.36 points.  

    European losses were led by the financial sector, which has come under strong pressure recently.  Deutsche Bank, the largest German banks has seen its stock plunge more than 35 percent since the beginning of the year.

    Today its officials were forces to reassure investors that it has the ability to pay coupons on its riskiest debt. “Our capital and risk position remains strong, and this enables us to address these requirements from a position of strength,” Chief Financial Officer Marcus Scheck wrote in a memo to employees posted on Deutsche Bank’s website according to Bloomberg. 

    In U.S. bond markets Treasuries were well bid. The 2-Year yield lost 6 basis points, 7.74 percent to finish at 0.6662 percent, its lowest close since October 27th. The benchmark 10-Year yield slipped 9 basis points, 4.76 percent to complete the day at 1.7483 percent, its weakest close since February 2nd. 

    The U.S Dollar ended down modestly against the yen at 115.85, but, as with the equities, this disguises the recent steep decline of the greenback and the rise of the yen.  At one point the dollar/yen touched 115.18, the strongest level for the Japanese currency since November 11, 2014.  Negative rates from the Bank of Japan have proven powerless to devalue the yen in the face of global economic turmoil.

    Dollar losses versus the euro were more modest, with the European currency closing at 1.1193, just below the top of 1.1216.  Since the beginning of the month the euro has gained 2.80 percent versus the U.S. currency, and traded over 1.1200 for the first time since last October. 

    West Texas Intermediate, the U.S crude oil standard lost 2.74 percent on the day closing at $30.12. It had been down by as much at 4.52 percent. The price of a barrel of WTI has lost 10.9 percent this month.

    Joseph Trevisani

    Chief Market Strategist

    WorldWideMarkets Online Trading

    Charts: Bloomberg

     

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