Stocks are trading near their lows for the session as the market suffers a widespread decline. China made headlines with an unexpected move to tighten monetary policy. Combined with a disappointing earnings report from Alcoa (AA) last night and investors used it as a cue to sell. A dip in the dollar offered no boost to commodities. Crude oil is down about 1.8% near $81.00 a barrel. Gold futures are off over $13 to $1,138 an ounce.
Asian markets were mixed but bulls held the upper hand. Markets were surprised when the Chinese government tightened monetary policy in an effort to curb growth. China raised the interest rate on its one-year note from 1.76% to 1.84% and then told banks to raise their capital reserves by 0.5%. Investors are fearful that as China applies the brakes to its own economy it will cause the global recovery to stumble. The Chinese Shanghai index rose 1.9%. The Hong Kong Hang Seng lost 0.38%. The Japanese NIKKEI rose 0.75%.
Stocks were down across the board in Europe. The combination of the China news and Alcoa's earnings miss really hit the mining stocks hard. The major bourses saw their biggest drop in three weeks. The English FTSE fell 0.7%. The French CAC-40 lost 1.06%. The German DAX declined 1.6%.
There are a handful of stories circulating today in the U.S. First and foremost was the reaction to Alcoa's (AA) earnings report last night. The company has a long history of missing estimates and last night was no different. Shares of AA had climbed sharply the last several weeks and traders are trying to lock in a profit. The stock is off just over 10% on the session with huge volume of more than 115 million shares already traded. Mining and metal stocks in general are down. The XAU gold & silver index is off 3.8% while the SLX steel sector ETF is down 2.3%.
We did have some economic data out today. The Commerce Department released their November U.S. import/export numbers. The trade deficit shot higher with a 9.7% gain to $36.4 billion, which is the highest level in a year. Imports rose 2.6% mostly due to rising oil prices. The Labor Department released a report on job openings. This didn't get much press since the data was from November. Job openings in November fell to 2.4 million jobs down from 2.5 million jobs the month before. This was 27% lower than the prior year. We constantly hear about job losses with the non-farm payrolls report but you might be interested to know that last November employers actually hired over four million people - at least according to the Bureau of Labor Statistics.
While we're on the subject of government reports the Federal Reserve announced a record-breaking profit in 2009. In its efforts to help bail out the banking system the Fed found itself owning a lot of securities. The stock market rebound off the March 2009 lows produced a profit of $52.1 billion. About $46 billion will be turned over to the U.S. Treasury.
Speaking of the Treasury the U.S. just sold $40 billion in three-year notes today. The auction was very strong with a bid-to-cover ratio of 2.98 versus an average of 2.78. This was the second of four auctions planned for this week. CNBC had an interesting note. In 2007 the Treasury sold $30 billion in 3-year notes. In 2008 it sold $53 billion. In 2009 they sold $430 billion in just 3-year notes. This year could see nearly $550 billion in 3-year notes.
Currently stocks are trying to recover from their lows of the session. Some of the worst performers are metal and mining stocks, which is not surprising giving the Alcoa news. What is surprising is the 3.8% sell-off in the semiconductors. Energy stocks are also suffering as crude oil retreats.
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
Chart of the Dow Jones Transportation index:
The market's widespread decline has produced similar moves across the OptionInvestor.com play list. I don't see anything out of the ordinary today.