- China’s falling Yuan dragged stocks markets around the world.
- Google’s formation of a holding company Alphabet & appointment of a new CEO for Google was overshadowed.
- All eyes are now on Alibaba earnings, which reports latest earnings before today’s market opening.
The China Syndrome - Stock Markets Nosedive
China’s decision to let the Yuan fall by about 1.7% overshadowed Google’s move to turn itself into a holding company called Alphabet, sending U.S. stocks down yesterday. A late-day rally kept losses in the averages modest. The Dow Jones finished off 1.11% lower, to close at 17,419, the S&P 500 finished down .95% to 2,084, and the NASDAQ declined 1.27% to 5,037.
Shares across Asia started the slide, with Japan’s Nikkei ending trade down .42%, India’s Sensex down .84% , and Germany’s DAX 30 falling 2.84%. Makers of cars and other luxury goods were especially hard-hit.
U.S. companies that do a lot of business with China were all down, like Apple (NASDAQ:AAPL) , down 5.2%, YUM Brands (NYSE:YUM), down 4.9% to $83.54, and Alibaba (NYSE:BABA), down 3.9% to $77.34, were also slammed. So were commodities, with West Texas Intermediate, the primary U.S. grade of oil, falling 4%. Gold, however, managed a small gain, finishing at $1,108, up nearly .4%.
Chinese businesses won’t enjoy the commodity discounts, of course, because they will now be paying for imports using a depreciated currency. The good news is the prices they can charge on exports will also be reduced, especially exports to the U.S.
Looking for good news? The Federal Reserve may also have a harder time raising U.S. interest rates next month, as it has indicated it wants to. The dollar was up against most major currencies, breaking 125 Yen, and finishing at 6.3 Yuan to the dollar. U.S. bond prices rose, with the 10-year note closing at about 2.14%, down from 2.23% a day earlier and indicating stronger demand.
Google Announces Alphabet & New CEO
Google (NASDAQ:GOOG) shares managed to defy the downturn, rising 4.45% to end the day at $692 after trading as high as $700 early in the day. Google’s decision to create a holding company called Alphabet, and put Chennai native Sundar Pichai in charge of the search engine business, while co-founders Larry Page and Sergey Brin kicked themselves upstairs to the holding company, was widely praised by analysts, who believe it will push Google toward maximizing profits at units like YouTube and dumping or spinning-off operations like self-driving cars that don’t get bottom-line results.
Pichai got congratulatory tweets from a host of top Indian executives, starting with Prime Minister Narenda Modi and Microsoft (NASDAQ:MSFT) CEO Satya Nadella, and it was probably just a coincidence that the company chose yesterday to start a drive toward boosting its Android market share in India, with smart phones as low as $50.
Good Becomes Bad
A good example of what all this did to tech markets came when Rackspace (NYSE:RAX) spiked late Monday after reporting it would buy back $800 million worth of its $4.2 billion market cap over the next eight months, then fell hard during the day to finish at $29.26, down almost 8%. Stocks that didn’t have news also did badly, with Microsoft down 2.2% to $46.25, IBM (NYSE:IBM) down .74% to $155.60, and Facebook down .46% to $93.75.
So What Happens Now? Stock Markets Today
As highlighted in the Monday edition of this stock markets news daily, all eyes on today will be on the latest set of Alibaba earnings numbers, which is expected to report earnings of 41 cents/share. Alibaba, also recently tied up with Suning, to take on JD (NASDAQ:JD) and other competitors in Chinese retail, but that's not going to add anything in Dollar terms to the latest earnings release. Alibaba's number will be seen as an indication of just how hard the China slowdown is hitting consumers there, and a miss could causing another hard fall for U.S. stocks today.
The guess here is that the bears will find an excuse to roar again. Watch out for our daily coverage of U.S. Stock Markets in our section titled, Markets This Morning.