The trading week has been abridged by yesterday’s public holiday, but the pattern resumed by the financial markets on Tuesday has been all too familiar.
By Peter Martin
Wednesday, January 21, 2015
The oil price has dipped once again and the uncertainty surrounding how low it might go has chipped away at investors’ appetite for risk. That has helped to push the Dow Jones into triple-digit losses.
Weak international sales for J&J
The blue chip index has also been shaken by worse-than-expected sales from constituent Johnson & Johnson ($JNJ). The pharmaceuticals giant achieved earnings just above the consensus estimate, but its share price plunged more than 3% after reporting a 6.7% fourth-quarter fall in international sales, a result of the strength of the US dollar.
An international footprint is a commonality shared by many of the components in the Dow Jones and there is every reason to think a negative currency impact on international sales will be a repeated theme in the next few weeks.
By early afternoon in New York, the Dow Jones was down by 102 points or 0.58% at 17,409, while the S&P 500 Index’s losses were less pronounced, falling 0.28% to 2014.0. The NASDAQ 100 was able to eke out a positive performance, however, gaining 0.35% to 4156.5. NASDAQ 100 component Netflix ($NFLX) reports after the market close tonight.
Fundamentals weigh on oil
The fundamental picture of growing supply and weaker demand has dragged on the price of crude: US light crude oil futures fell 2.0% to $46.92 a barrel, after news of record Iraqi output and a cut in the IMF’s projections for global growth. Iraq holds the fifth-largest reserves in the world, but its ability to export oil has been constrained for years by sanctions and war. Despite military conflict with ISIS still plaguing the country, the oil industry is in the process of restoration and exports are up to a record 4 million barrels per day, according to its Oil Ministry.
The IMF reduced its forecast for global growth in 2015 to 3.5%, from the 3.8% it projected in October, while the outlook for 2016 has also been slashed, despite the incentive to consumer spending that cheaper oil presents. ‘A shot in the arm is not always enough,’ said Olivier Blanchard, the IMF’s Chief Economist. ‘On the other side going against it is general weakness of many economies in the world.’
The main piece of economic news domestically was the release of January’s Housing Market Index from the National Association of Home Builders (NAHB). The index came in at a solid level of 57, just below December’s upwardly-revised 58 (originally reported as 57). This is the seventh consecutive month in which the index has produced a result above 50, and suggests confidence within the industry remains buoyant, despite some softness seen in new home sales. There is a surfeit of housing data available this week, with housing starts due Wednesday, the FHFA house price index on Thursday and existing home sales out on Friday.
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