At one stage last night it looked as though financial markets were headed for another crunching sell off as global oil prices retraced their sharp gains of last Friday and Chinese stock markets sold off sharply in late trading with the key Shanghai market down more than 6% to new 13 month lows.
Markets across the rest of the region also sold off – Tokyo fell 2.3% and Hong Kong lost 2.4% with the losses boosted by the uncertainty in China. Australia was spared the pain because of the Australia Day holiday.
The sell off continued into early European trading, but as the session went on, the direction started reversing and red changed to green, especially in oil.
By the time the US markets opened, the tone was upbeat, the colour was green and a good day was had by all in what many analysts called a ‘dead cat bounce’.
By the time markets open here, our market will be looking at a 40 point rise at the opening. It was up more than 50 points late in the session, so there was a late easing. Was that a sign the rebound is running out of puff?
Well, Wall Street ended up around 0.9% for the Nasdaq to more than 1.6% for the Dow and 1.2% for the S&P 500.
Iron ore prices dipped 1.2% to just over $US41 a tonne, normally a negative, but given the rebound seen overnight, it will be ignored, especially with oil prices rallying hard in Europe and US trading.
Brent crude soared 5.7% to $US32.26 a barrel, whileUS crude futures rose more 3% to $US31.31 after falling well under $US 30 a barrel in late Asian dealings yesterday.
There were rumours of a ‘ceasefire deal’ in Opec, but markets have learned to ignore these if they don’t have Saudi Arabia’s name attached to them. The idea seems to have emerged from Opec officials and countries such as Nigeria and Venezuela, which are basket cases.
The Aussie dollar improved, regaining the 70 US cent level as ‘risk off trading’ replaced the earlier caution (and fear). That was a rise of nearly a cent from the day’s lows.
In China, the Shanghai Composite Index ended down 6.4% after a late selling frenzy at 2749.79 points, its lowest close since December 1, 2014.
And the CSI300 index of the largest listed companies in Shanghai and Shenzhen slumped 6% to 2940.51, also its lowest since the beginning of December 2014.
China’s fickle stock markets have now slumped about 22% so far this year on concerns about the slowing economy and confusion over the central bank’s foreign exchange policy.
Markets are looking to the results of the two day Fed meeting which started overnight – the Fed will issue a statement around 6am or a little after tomorrow.
No increase in rates is expected and investors are anxious to see what the central bank says about the weak start to 2016 for financial markets around the world.
