Monday January 4th

4-01-2016

Dow futures down triple digits after China markets halt trading

U.S. stock index futures pointed to a sharply lower open on Wall Street Monday, the first trading day of 2016, amid a sharp sell-off in Chinese stocks and heightened geopolitical tensions between Iran and Saudi Arabia. Dow futures briefly fell more than 300 points, before holding about 285 points lower. Feeble manufacturing surveys in China revived concerns over the slowdown in the world's second largest economy. Fresh manufacturing PMIs on Monday showed a fall to 48.2 in December, from 48.6 in November, contracting for a 10th month and coming in below a Reuters poll forecast for 49.0. The distinctly risk-off mood was highlighted as the Shenzhen Composite had its worst day since early 2007, closing down 8.2 percent. The Shanghai Composite ended down 6.86 percent and trading on both exchanges was temporarily halted as the authorities implemented a "circuit breaker" for the first time. In Japan, the Nikkei 225 closed down 582.73 points, or 3.06 percent, at 18,451, with most sectors finishing in the red. South Korea's Kospi index, which started trade late, was down some 2.17 percent at 1,918.76. In Europe, the pan-European STOXX 600 was down about 2.6 percent in morning trade with Germany's DAX briefly slumping more than 4 percent.  Meanwhile, rising tensions between Iran and Saudi Arabia provided little risk premium to oil prices on Monday. Prices had moved higher after a breakdown in diplomatic ties that could still lead to supply restrictions in the Middle East. Saudi Arabia severed diplomatic ties with Iran over the weekend after Iranian protesters stormed Saudi Arabia's embassy in Tehran Sunday following Saudi Arabia's execution of Shiite cleric Nimr al-Nimr on Saturday. Back in the U.S., a PMI manufacturing index is due at 9:45 a.m. ET and a ISM manufacturing Index is due at 10 a.m. ET. San Francisco Fed President John Williams will be speaking on the implementation of macroprudential policies by central banks at the AEA Annual Meeting in California at 5:30 p.m. The event in San Francisco is on the minds of investors as the pace of interest rate hikes remain in focus. Loretta Mester, president of the Cleveland Fed, told Reuters in an interview Sunday that she did not need to see clear evidence of inflation to back more policy tightening after the Fed's initial rate hike in mid-December. Oil prices edged up on Monday after a breakdown in diplomatic ties between Saudi Arabia and Iran that some speculated could result in supply restrictions, although gains were tempered by data showing some of Asia's largest economies are struggling. Saudi Arabia, the world's biggest oil exporter, cut diplomatic ties with Iran on Sunday in response to the storming of its embassy in Tehran following Riyadh's execution of a prominent Shiite cleric on Saturday. Fellow Gulf producer Bahrain said on Monday it too would cut ties with Iran. Benchmark Brent crude futures were last up 95 cents on the day at $38.23 a barrel at 8:47 a.m. EDT (1347 GMT), having touched an intraday high of $38.50. U.S. West Texas Intermediate (WTI) futures were up 59 cents at $37.63. Gold rallied more than 1 percent on Monday, buoyed by rising tensions in the Middle East and a sharp drop in stocks and the dollar following weak Chinese data that fueled concerns over global growth. Platinum group metals, which as largely industrial commodities are more exposed than gold to economic weakness, dropped sharply after Chinese manufacturing surveys undermined any hopes for a recovery in the sector. Spot gold was up 1.57 percent at $1,076.93 an ounce, while U.S. gold futures for February delivery were up $16.40 an ounce at $1,076.60.