Market Drivers: China, Metals, Earnings

Bobblehead

Bobblehead (Photo credit: supa_pedro)

Markets have shown some weakness this week as the 2013 rally appears to be losing a little steam. The pressure has been accompanied  by a marked uptick in volatility, with triple digit moves in the DJIA every day this week so far, and the VIX (CBOE Market Volatility Index) spiking to 17, closer to its long term average of 20.  Here are three things that have been driving the market:

China - weak GDP outlook

The week started off with stocks selling off sharply following some weak GDP numbers out of China. The numbers revealed that Q1 GDP rose at 7.7% year over year, slower than the 7.9% growth seen in Q4, and below the 8% forecast. Also, industrial output rose 8.9% in March from the prior year, much lower than analysts' targets of 10%. These reports fueled fears that the global recovery is slowing down, and more importantly re-ignited concerns about China’s real estate market, and possible oversupply. As Business Insider’s Henry Blodget says, “If the economy is growing only at 7.7% and they’ve built these stockpiles of unneeded stuff, then you could have demand for commodities collapse and the economy could collapse as a result of that."

Metals Tumble

Prices of gold, copper, and silver tumbled this week as demand concerns out of China, and reports of the Central Bank of Cyprus selling gold kept pressure on commodity markets. As mentioned in the prior segment, disappointing GDP numbers from China made investors wary of a slowdown in commodities demand as the excess real estate overhang is absorbed. While existing real estate is being bought, new construction projects could suffer. On the gold front, there were rumors circulating that the ECB would force Cyprus to sell gold reserves to help finance its bailout. This caused a “mass exodus” of investors from gold-related ETF’s, as well as some mining names. Over the last couple of weeks, the yellow metal has officially entered into bear-market territory and is over 13% lower since the start of April. The sell-off also reflects a broader preference among investors for stocks over precious metals, fears over global inflation are subsiding. Jason Hughes, head of sales trading at CMC Markets in Singapore said, "Global downgrades to growth forecasts by the IMF, poor U.S. data, poor car manufacturing data out of Europe, talk of German downgrades--none of this news is good for demand."

Earnings Recap

Earnings season kicked into high gear this week, with some big names releasing their numbers. Here are a few notable reports:

  • Coca-Cola shares rose after beating on earnings and revenue even though the beverage giants top line result of $11.04 billion represented a year-over-year decline of 0.9%.
  • Goldman Sachs slipped slightly  after topping bottom-line estimates, with the company's revenue of $10.09 billion representing a 1.4% year-over-year increase.
  • Johnson & Johnson saw shares rise throughout the day after beating solidly on both lines.
  • Bank of America slid after missing on earnings. 
  • Both American Express and Morgan Stanley show little reaction after reporting mixed results. The two financials beat on earnings, while revenues were slightly short of expectations for both names.

As the season progresses, it will be interesting to see if investors place their bets based on corporate fundamentals, or if macro concerns impact their decisions.

Weekly Bonus – Save that Giveaway

I am sure most of us have been to a sporting event at one time or another where they gave away some sort of tchotchke or trinket at the ticket gate. While many such items rarely make it out of the stadium, it turns out that some items turn up on e-Bay at prices as high as $100! Generally speaking Bobbleheads seem to be the most popular items to pop up on the secondary markets, as are lunch boxes and other replicas. Also, if you want to shell out .99 you could get yourself a Baltimore Raven Verizon Stadium scarf (but beware the $3 cost for shipping). On the “not so surprising” side, a set of NY Jets trading cards from a recent season is still waiting to garner a bid.  

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