Strong price drop on world stock markets on Thursday - 1.8.2014

The quotes on world stock markets tumbled on Thursday. S&P500 indicated a decline for the first time since January, as a result of the data on US economics and earnings reports, as well as the increased risk of Argentina falling in default.

The Labor Market weekly overview happened to be very positive, so that it increased the Fed rate hike, according to investors. As a result, the US Dollar strengthening continued, but the stock prices dropped. Initial Claims amounted to 302,000. Meanwhile the average 4-week value of this indicator slipped to its low since April 2006. Salary and wages levels in the United States, which amount to 70% of personnel expenses, rose 0.6% in the second quarter. This is the highest increase since the third quarter of 2008. A growth of average wages and salaries may increase the inflation. Purchasing Managers Index (PMI) in Chicago collapsed unexpectedly in July for 10 points, from 62.6 to 52.6. This is the first significant decline since the economic crisis of 2008 and the second since 1980. A record divergence of the real performance value with the preliminary forecasts was observed yesterday. The weak reporting of the US company Exxon Mobil and the Korean Samsung Electronics was a supplementary negative factor for the stock market. There was a support “downward breach” of the long-term uptrends indicated by the majority of the stock indices. Yesterday, their slump entailed a considerable increase in trade turnover. The trade turnover on US stock exchanges was 43% higher than the month average, and made up 8 billion stocks. A large bulk of macroeconomic data is to be released today in the U.S. At 12-30 CET Nonfarm Payrolls for July is to be announced, as well as the release of Personal Income & Spending. At 14-00 CET ISM manufacturing index and Construction Spending are to be published. In our opinion, the forecasts are positive. Although the data increases the chance of the rate hike, as we have mentioned above, and has a negative impact on stock markets. From the point of view of technical analysis, the downward correction is long overdue. S&P500 has maintained in the uptrend for five years, and has not been corrected downward by at least 10% for almost three years. We have written many times about it in previous overviews. Now U.S. futures indexes are "in the red." It should be noted that today 50 companies (including Chevron, Procter & Gamble) listed in S&P500 are going to submit their earning reports, which can significantly affect the market dynamics. There will be no US macroeconomic data released on Monday.

European stock indices fell today for the third consecutive day. Apart from the US negative data, the EU inflation reduction in July yesterday contributed to the decline in indices, increasing the risk of deflation and decline in retail sales in Germany. Weak PMI performance of individual countries and the EU as a whole for July came out this morning. No more economic data in Europe is expected this week. The world’s largest European steel company ArcelorMittal, and the EU largest construction company Vinci lowered their profit forecast for the current year, and their stocks fell 3.3% and 8.7%, respectively.

Nikkei dropped for the second consecutive day, along with other world stock indices. Meanwhile, there are no especially negative factors observed for Nikkei. On the contrary, good quarterly reports of Sony Corp and Panasonic Corp have been released. Their stocks added 6.5% and 3.1%, respectively. The next economic data will be released in Japan on Tuesday morning.

Oil prices continued to decline, meanwhile coffee prices kept on growing, as it was expected from our previous overview. Cocoa prices have also jumped, but not so greatly.

Cotton prices fell to five-year low. Meanwhile, its production in China in 2015 could be reduced by 24%, from 6.6 million. tons to 5 million tons, according to China National Cotton Reserves Corp. It can be explained by the fact that the Chinese government is not planning to purchase from the cotton suppliers, farmers. According to this agency, the cotton cultivation areas in the province of Xinjiang has already decreased by 12.5%. It has also mentioned that the recent drop in world prices was partially due to the sales volume of 2.2 million. tons of cotton from the Chinese government reserves. For this reason the country has reduced imports and purchases on the world market in the first half of the year by 42% to 1.4 million. tons.