Yuan Stabilization Could Lift Markets Today - Markets This Morning

  • A late-day fall in oil prices took the markets down Yesterday.
  • Worries about China are still weighing on traders, but Yuan stabilization may be in sight.
  • Disappointing earnings did the markets no good.
  • There's more news on oil, the Greek bailout, the German economy and the US job market.
  • All of this news combined, the sentiment in open to interpretation for stock markets today.

First Things First - Yuan Stabilization In Sight?

Yuan Stabilization Could Lift Markets Today - Markets This Morning

After a 3 day slide that spooked global markets, China's central bank finally set the official exchange rate higher. The move could ease worries about further pain from devaluation of the Yuan. Here's the NY Times report. China's currency devaluation has been at the heart of the panic in global markets, and the news is likely to be well received. That said, it still looks like a mixed bag, with a bunch of news items that are open to interpretation. Let's see why.

The Rally Slips Up on Oil - Thursday's Stock Market Slide

A late-day sell-off focused on energy led most of the averages down on Thursday, after spending most of the day in positive territory. The S&P 500 ended down .13%, or 2.66, at 2,083, and the NASDAQ closed the day, down .21% or 10.83, at 5,033. The Dow remained up, rising 55 or .32% to 17,458.

The problem is that much of the U.S. economy is still tied to oil, oilfield services and refining. With West Texas Intermediate, or WTI oil plunging to $42.04 per barrel, just about $1/gallon, markets  began to slide, with much of the loss coming late in the afternoon.

Thus Halliburton (NYSE:HAL) was down 2% to $41.76, Schlumberger (NYSE:SLB) was down .87% to $84.09, and the big oils like Chevron (NYSE:CVX), down .51% to $77.07, and Exxon Mobil (NYSE:XOM), down .16% to $78.66, followed. Pipeline companies like Kinder Morgan (NYSE:KMI), down 2.1% or 71 cents to $33.14, also fell.

The real pain will be found further down the food chain, among the drillers who were bragging a month ago they could make money at $50 but are now looking $40 in the face. Sanchez Oil (NYSE:SN), a Texas oil driller which lost 6% or 48 cents to $7.21, was a $30 stocks a year ago. Chesapeake Energy (NYSE:CHK), a natural gas driller that looked cheap at $25/share a year ago, is now at $7.49, down another 51 cents or 6.4%.

A breakdown at a BP (NYSE:BP) refinery outside Chicago, could lend some support to oil prices that are near their six year lows. That's the only glimmer of hope as far as oil is concerned.

The Measure of the Tianjin Disaster

The second day stories on explosions at Tianjin, the port just 120 miles southeast of Beijing, were if anything worse than the first-day stories. As trading ended the death toll stood at 50, including 17 firefighters, with dozens more seriously injured, and chemical experts being called in to battle blazes that were still raging and assess the pollution damage.

This could become the Chinese equivalent of the 1969 Cuyahoga River fire near Cleveland, which helped spur the creation of U.S. environmental laws. It should be noted, however, that the 1969 was just the last of several such fires on the river, and that the combination of smoke and fog known as “smog,” now covering many Chinese industrial cities, had been around for decades in cities like Los Angeles before finally being addressed.

The need to spend is not going to help the Chinese Yuan, which fell .15 during against the dollar, but it’s not really moving against the Japanese Yen, finishing at 19.45 Yuan to the Yen. What Japan and China have in common is a demographic cliff, an aging population that will have fewer workers to meet the needs of more seniors in the future.

Earnings After Hours Disappoint

After trading ended Applied Materials (NASDAQ:AMAT), which makes semiconductor manufacturing equipment, announced earnings that were in-line with estimates, 33 cents/share or $329 million on revenue of $2.5 billion. They beat expectations of  27- 31 cents of earnings against previous estimates of 37 cents. As a result the stock dropped 1% in the after-hours market, to $16.87.

Other, smaller companies that reported earnings also disappointed, with online games company King Digital (NYSE:KING), known for the game Candy Crush, losing 8% of its value or $1.22 per share despite earnings of 49 cents per share beat estimates of 43 cents on $500 million in revenue.  Analysts had been expecting more, with Stifel Nicholaus giving it a buy rating with a price target of $20, and Vetr calling it a strong buy. It could open for trading on Friday at $14, based on after hours trade. El Pollo Loco (NASDAQ:LOCO), a chicken franchise, also wound up falling 14% after-hours, after earning $7.2 million or 18 cents per share on $89 million in revenue. Analysts had been expecting earnings of 18 cents on $93 million in revenue.

So What Happens To The Markets Today?

Worry has returned to the market, with fears of deflation now replacing earlier concerns of inflation, and the Chinese devaluation making a rate hike in September unlikely. The good (and probably big) news is, the Yuan may not slide further. The other good sign is that U.S. Jobs might be getting even better, with jobless applications falling to a 15 year low. Meanwhile, Greece also secured votes to pass the bailout in it's parliament.

If oil can rise before the market opens we could see some real positivity on the street. If it continues to fall toward $40 it will be a bad one. But again, the question is, is good news really good news? If these pieces of news are seen as triggers that strengthens calls for a rate hike, you're not sure how the markets will pan out.

On the down side, there is the German economy, the big engine that's lugging the Euro Zone, that's not expanding as expected. Tepid earnings, one of which came from Alibaba (NYSE:BABA), which has seen a downgrade from analysts, don't help the markets.

All things combined, it's open to interpretation, and the verdict will be out when markets open today. Check out our stock market news daily titled Markets This Morning, for daily breakfast news you can use.

Dana Blankenhorn Dana Blankenhorn   on Amigobulls :

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