Investors were shocked by news that China was raising bank reserve requirements again for the second time in a month. Combine this news with disappointing GDP data for the eurozone and a decline on U.S. consumer sentiment and it's no surprise to see stocks trading lower. The European GDP news sent the euro lower, the dollar higher, and commodities reversing lower again. Crude oil is off 2.4% near $73.46 a barrel. Gold futures are down about $5 near $1,089 an ounce.
Asian markets were mixed. The Japanese markets reopened to gains with a 1.29% rally in the NIKKEI. The Chinese Shanghai index rose 1.0% marking its fourth gain in a row. The Hong Kong Hang Seng fell 0.1% ending a three-day winning streak. Volume was extremely light as investors withdrew ahead of a major holiday. The country of China is about to celebrate the weeklong Lunar New Year holiday, which moves the nation from the Year of the Ox to the Year of the Tiger. Chinese officials waited until after the markets were closed to make their announcement.
No one expected China's government to raise bank requirements again. First of all they had just done so about a month ago. Second, on Thursday China released their CPI figures, which came in lower than expected. If inflation was cooling then why did China need to curb lending again? Analysts and traders have been complaining for years that China's economic numbers released to the public may not reflect reality. Announcements like this certainly makes one wonder. China's central bank said it was raising reserve requirements by another 50 basis points effective February 25th. The move should slow down lending and help keep inflation in check. It also raises doubts about how long China will remain the engine of growth for the global recovery.
If the China news wasn't bad enough the 16-country eurozone (countries using the euro currency) reported their collective Q4 GDP numbers. The results were very disappointing and suggest the entire region could slip back into recession. The eurozone only grew by +0.1% last quarter. Economists were expecting +0.4%. Were it not for France's +0.6% growth the eurozone would have probably seen negative numbers. Germany, the largest economy in Europe, delivered 0.0% (zero) growth. Analysts are now suggesting that the +0.4% growth in the third quarter was all temporary due to government stimulus.
Investors remain focused on the PIGS countries. Portugal's GDP was unchanged. Italy, the region's third largest economy, fell 0.2%. Greek GDP dropped 0.8%. Spain's output slipped 0.1%. Overall it was a very sobering report. The French CAC-40 index gave up 0.49%. The English FTSE dropped 0.28%. The German DAX closed down 0.1%.
Further complicating matters for traders today was a disappointing consumer sentiment report for the U.S. The Reuters/University of Michigan Surveys of Consumers announced their preliminary February reading slipped from 74.4 in January to 73.7 in early February. Economists were expecting a rise to 75.0. Inside the survey is several components. Consumer's 12-month outlook slipped from 84 to 79. Consumer expectations fell from 70.1 in January to 66.9 in February. Why do we care? Analysts believe that if consumer sentiment is falling they will spend less and nearly 70% of the U.S. economy is consumer spending.
Speaking of consumer spending the Commerce Department said January retail sales rose 0.5%, which was better than the 0.3% estimate. The results are not having much of an impact on the market. The RLX retail index is off 0.17%. In a separate report the Commerce Department said business inventories for December fell 0.2%. This was a very disappointing report since it ends a two-month bounce. The +0.3% gain last October ended a 13-month string of declines. November's +0.5% gain inspired hope that the economic rebound was finally kicking in. Today's reading casts more doubt on the strength of the recovery.
Currently stocks are bouncing off their intraday lows. The S&P 500 is down about 7 points near 1071 and trading inside its 1060-1080 range. The NASDAQ composite is back in positive territory with a sudden surge higher in the last 45 minutes. The Dow Industrials has also seen a recent spike higher in the last 30 minutes but remains in negative territory. The small cap Russell 2000 is trying very hard to stay in positive territory with a fractional gain.
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
Scanning the OptionInvestor.com play list I see that TEVA is showing some relative strength today. AAPL is rising above the $200 level. Yet for the most part stocks are churning sideways.