Tuesday, September 29, 2015
Stocks are indicated to start today's session modestly in the green. But that may not mean much given the overnight weakness out of Asia that followed Monday's U.S. sell-off. Given the market's recent behavior, it shouldn't surprise anyone if the opening gains disappear by the end of the session.
Driving this market weakness is uncertainty about the global economic outlook, with China as ground zero. We have known for a while that China's economy was slowing down, but the hope was that it will be able to avoid a hard landing and maintain the government's 7% GDP growth target.
Recent data about trade, factory sector activities and the overall pace of investments has been raising doubts about that 7% target, with many in the market suspecting that growth momentum is likely a lot weaker. A key economic reading coming up is the September factory sector PMI survey coming out on Thursday. Questions about the quality and reliability of Chinese economic data adds to this uncertainty.
China's slowdown is a major reason for the ongoing turmoil in the global commodity markets - from aluminum and copper to oil and everything in between. A host of commodities-exporting countries like Canada, Australia, Brazil and South Africa have been hit hard by this weak commodity price backdrop.
Glencore, a major commodities trader based in Switzerland, remains at risk of going under while the financial health of many oil and gas operators has been stretched thin. Even the Fed decision to delay the lift-off decision was China inspired, which unfortunately has only added to market volatility.
Bottom line, China matters and that's why we have this all-around uncertainty in the market, even though its direct impact on the U.S. economy is small.
Director of Research
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