What goes up must come down? Global markets are in full retreat as a relentless slide in oil prices and a weaker world growth outlook from the IMF dealt another blow to investor appetite. Hong Kong shares tumbled to their lowest levels since the depths of the global financial crisis, Japan's Nikkei entered a bear market and equities everywhere else are deep in the red. With risk out of favor, sovereign bonds and gold are in demand. Yields on U.S. 10-year Treasuries fell below 2.00% - down a massive 29 basis points since the new year began - while the yellow metal advanced 0.5% to $1,094 an ounce.
Crude futures are getting slammed again, with U.S. oil falling to its lowest since September 2003 on worries about a global glut. The drop comes after the International Energy Agency, which advises industrialized countries on energy policy, warned on Tuesday that oil markets could "drown in oversupply". Stocks data from the American Petroleum Institute is due later today, while official figures from the Energy Information Administration will be released tomorrow. WTI -2.3% to $27.80/bbl; Brent -2.3% to $28.09/bbl.
Just a few years ago, the so-called BRICS were taking the world by storm with surging economic growth, although it now looks like they risk capsizing it. China was growing at an average rate of more than 10% a year, peaking at over 14% in 2007. India averaged 8%; Russia 5%; and Brazil and South Africa around 4%. To put that in perspective, the G-7 economies expanded at an average rate of less than 1.4% over the same time frame. What happened? The commodity- and export-dependent emerging economies have long been prone to booms and busts, as their fate depends largely on the tide of global demand. They also face deep debt problems, political turmoil and major demographic challenges.
The Hong Kong dollar's 32-year-old peg to the U.S. greenback is at risk, analysts continue to caution, as local stocks took another pummeling during today's session. Contracts to buy the currency in 12 months fell as much as 0.3% to HK$7.8904, beyond the HK$7.75-HK$7.85 range that it can trade within under the existing exchange-rate system, as the city's once alluring access to Chinese assets becomes less attractive to investors. Hang Seng -3.8%.
Meanwhile, the Saudi central bank has warned commercial lenders against betting on depreciation of the riyal as tumbling oil prices put pressure on the currency. Bets for a devaluation of the riyal reached their highest in almost two decades this month, driving 12-month forward contracts to their highest since at least December 1996. Banks and hedge funds are also speculating that low oil prices might eventually prompt Riyadh to scrap its peg to the U.S. dollar (which has been linked since 1986). Tadawul All Share Index -4.3%.
The collapse in crude prices also caused the ruble to nosedive to a record low today as the oil plunge weighed on the Russian economy and surpassed every other obstacle the nation has endured including crippling sanctions. The currency fell 1.8% to 80.156 against the dollar, breaching a threshold it last crossed during the ruble crisis of December 2014 that forced the central bank to intervene through a series of emergency rate increases. MICEX -1.6%.
Pakistani Taliban gunmen stormed a university campus in the country's northwest today, killing at least 21 students and wounding dozens. "The terrorists will see a ruthless response by the state. The entire nation is united and one against terrorism," Pakistan Prime Minister Nawaz Sharif said in a statement. The attack took place at Bacha Khan University in Charsadda, Peshawar - less than 25 miles from where the Pakistani Taliban slayed 145 people, including 132 children, in another college attack in December 2014. Karachi 100 -1.1%.
This morning is packed with the Consumer Price Index and U.S. housing starts, which will both be released at 8:30 a.m. ET. The reports will reveal how the broader economy is performing, and will be key indicators for the Fed as it continues to evaluate the potential for future rate hikes. The CPI is expected to be unchanged, weighed down by a steep drop in gas prices, while economists anticipate housing starts to advance from 1.173M to 1.2M.
Royal Dutch Shell's profit fell by as much as 50% in Q4 compared with the same period in 2014, another illustration of how the slump in oil prices is wreaking havoc on the energy industry. Earnings adjusted for one-time items and inventory changes is expected to be between $1.6B-$1.9B (from $3.3B), while profit for the year on the same basis is predicted to have fallen between $10.4B-$10.7B (from $22.6B). Another looming question is whether shareholders will approve Shell's (RDS.A, RDS.B) $49B takeover of the BG Group (OTCQX:BRGYY). The oil major expects the deal to conclude in "a matter of weeks."
More pain in the energy sector: Chesapeake Energy (NYSE:CHK) fell 13.2% yesterday to its lowest since April 2000, making it the worst performer in the S&P 500 Index. ConocoPhillips (NYSE:COP), the day's second-worst oil and gas performer, tumbled as much as 9.6% before settling for a 7.4% drop, its lowest close since March 2009.
The semiconductor consolidation continues...Microchip (NASDAQ:MCHP) has finally sealed a deal to buy Atmel (NASDAQ:ATML), which stated last week that the former's unsolicited bid was superior to an offer from Dialog Semiconductor (OTC:DLGNF). The $8.15/share cash-and-stock bid will value Atmel at $3.4B. Microchip also said it expects to report FQ3 revenue of $552M and $0.62-$0.63, slightly above a consensus of $551.8M and $0.61. MCHP +0.7%; ATML +0.1% premarket.
In a major expansion of its philanthropy efforts, Microsoft (NASDAQ:MSFT) plans to donate more than $1B worth of cloud services to nonprofits over the next three years in a bid to "advance the public good" and help solve some of the world's toughest problems. The largest part of the funds will provide free or discounted cloud services, such as Azure computing power and data storage, Office 365 programs and other products.
California's Public Utilities Commission is planning a public hearing for Jan. 26 (9 p.m. ET) to consider the merger between Charter Communications (NASDAQ:CHTR) and Time Warner Cable (TWC). An administrative law judge will preside (to deny, grant or modify the proposal), but no action is planned until all the public comments are vetted. New York's State Public Service Commission has already signed off on the deal.
Volkswagen has named former BMW executive Hinrich Woebcken to oversee its business in North America (effective April 1), where sales have been particularly hard hit by an emissions scandal that has placed the company under intense pressure from regulators. In December, U.S. sales fell 9% to 31K vehicles, even as the overall car market boomed. Including Canada and Mexico, VW (OTCPK:VLKAY) brand sales dropped 1% last month to 53K vehicles.
According to a newly filed court document, Martin Shkreli, the controversial former pharmaceutical executive who is facing federal securities fraud charges, is in the market for a new lawyer. On Dec. 17, prosecutors in Brooklyn charged Shkreli with defrauding investors in a former hedge fund and looting a drug company he once ran in an attempt to pay back the investors.
Johnson & Johnson is cutting about 3,000 jobs in its medical device unit, the company's latest step to restructure the struggling business. The eliminated positions represent 2.5% of the healthcare firm's 127K employees worldwide and as much as 6% of its medical device segment. J&J (NYSE:JNJ) expects the initiative to save between $800M-$1B a year before taxes, some of which will be invested in new-product development.
After largely holding up following a Friday tumble, Sprint (NYSE:S) sank late Tuesday afternoon to finish the session down 8.4% and hit a fresh 52-week low. The plunge shadows Friday's 10% fall on a Re/code report that detailed an ambitious plan to relocate equipment from private towers to government-owned spaces.
With the market off to one of the worst starts to a year ever, the earnings season over the next few weeks will take on greater importance to steady the ship. As a result of $6T being wiped off the value of world stocks since the beginning of 2016 and another 25% off already low oil prices, upcoming corporate results could dictate whether this correction turns into a bear market. Check out yesterday's notable earnings below.
Advanced Micro Devices (NYSE:AMD) -6.2% AH following weak Q1 guidance.
Bank of America (NYSE:BAC) -1.5% on concerns about high expenses.
Delta (NYSE:DAL) +3.3% as profits soared.
IBM (NYSE:IBM) -5% AH on soft earnings forecasts.
Morgan Stanley (NYSE:MS) +1.2% after beating estimates.
Netflix (NASDAQ:NFLX) +4.3% AH on heavy subscriber growth.
UnitedHealth (NYSE:UNH) +3% after topping expectations.
In Asia, Japan -3.7% to 16417. Hong Kong -3.8% to 18886. China -1% to 2977. India -1.7% to 24062.
In Europe, at midday, London -3%. Paris -3.3%. Frankfurt -2.9%.
Futures at 6:20, Dow -1.8%. S&P -1.8%. Nasdaq -1.9%. Crude -2.3% to $27.80. Gold +0.5% to $1094.50.
Ten-year Treasury Yield -5 bps to 1.98%
Companies reporting earnings today