Stock Market - World Market Update

Market Highlights

• Shanghai Drops 6.7%
• Canadian Q2 GDP Results
• Crude Oil Update

Shanghai Drops 6.7%

Risk has been taken off the table overnight as fresh news out of China has weighed on equity markets from around the globe. According to reports, Chinese officials may attempt to dampen stock market growth, ultimately diminishing its unprecedented six-month rally. For the manipulation to take place, the Chinese government could look into a number of options in an effort to stabilize their soaring markets. This might include a reduction in the amount of short-term paper used by central bankers to soak-up liquidity; expedited authorization of new shares could be also introduced quicker than normal. On the back of these reports, the Shanghai Composite Index slumped the most since June 2008, sinking a monstrous -6.7% for the session. Technically, this most recent decline has been enough to push the Chinese market into “bear market” status or, in other words, into the status of a market that has seen a decline in price action of over 20%. The Shanghai Composite has plummeted 23% since August 4th of this year.
In addition to the reports that China may look to curb equity prices, rumours that Chinese state-owned companies will be permitted to default on their commodity derivative contracts have also hit the street. As one might expect, the news from the world’s third largest economy (and major commodity consumer) has sent resource-based currencies into a tailspin. With risk aversion in high demand, commodity money like the Aussie, Kiwi, and (most notably) the Loonie were the big losers leading up to the NY open.

Canadian Q2 GDP Results

Today’s data calendar is rather light in the United States, though the Canadian calendar saw the release of second quarter GDP data. Canadian Q2 figures came in this morning at 8:30EST to a slightly less-than-favourable result, indicating that the economic downturn has been more potent than originally thought. Canadian GDP fell at a -3.4% annualized rate, marginally worse than economists’ expectations of a -3.0% decline throughout the April-June timeframe. While the street was looking for a -3.0% contraction, second quarter GDP numbers actually fell in line with the Bank of Canada’s modest expectations of a -3.5% drop. Further, first quarter GDP results were revised upwards from an initially-reported -5.4% contraction to a larger -6.1% figure (the largest drop in GDP data since 1961). June GDP rose +0.1%, slightly poorer than +0.3% expectations, but nonetheless notched the first monthly increase since July 2008. While the data has marginally missed expectations, the overall results are aligned with the Bank of Canada’s outlook that growth is to resurrect in the third quarter and carry on from there. A breakdown of the second quarter numbers reveals that the Canadian economy is intensifying, with government and consumer spending (and housing) leading the charge.

Crude Oil Update

Crude oil has given back close to $2.00 (or 2.6%) this morning on the coattails of the commodity-negative news of out China. As the world’s second largest consumer of natural resources, any flicker of news that a slowdown could be in the cards is certain to affect crude price action. Oil sank for the first time in three days, and is currently hanging on by a thread to stay in the green for the month of August. If able to hang in for the rest of the trading day, crude is poised to post its sixth monthly gain out of the last seven after falling in July.
Have a great day.

By Jamie Heighway, Market Analyst