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Does China's bumpy landing ahead effect trading in the U.S.?
January 19, 2016

Bumpy Landing Ahead
-- Market Bites --

Tuesday, 19th January, 2016

A bumpy landing ahead for China – as would be expected from data received so far this year.

At the time of writing, Asian shares were mostly higher on Tuesday. Shanghai stocks have surged on expected stimulus hopes due to disappointing data pointing to slower Chinese economic growth.

The data from China produced no negative surprises -- China's economy grew 6.8 percent in the fourth quarter from a year earlier, according to Tuesday's gross domestic product (GDP) data, the slowest growth since 2009 -- but it definitely confirmed the fact that growth in the world's second-biggest economy was indeed slowing -- which in turn will mean a bumpy landing ahead. This year, exports and consumption could remain weak. Investment, another driver of growth, really depends on government's spending on infrastructure.

Another annoying factor which is upsetting the smooth market growth is oil prices. In commodities, Brent crude LCOc1 has a 13-year low of $27.67 which was hit on Monday on worries about the return of additional Iranian crude to an already oversupplied market. However, at present, Brent was up 1.5 percent at $29.00 a barrel, rebounding from recent sharp losses.

International sanctions on Iran were lifted at the weekend, removing an obstacle to one of the world's biggest oil producing nations. Tehran on Monday immediately issued an order to ramp up production.

Instead of traders concentrating on their home-turf, where much of the economy is travelling along quite well, concerns about the health of the Chinese economy, and its bumpy landing ahead, which has been a primary theme this year, has stirred global growth concerns and buffeting markets worldwide.

Last week saw the indices take a beating with the Dow Jones Industrial Average (DJIA) down 2.2%, the S&P 500 Index (SPX) also down 2.2% and the Nasdaq Composite (COMP) losing 3.3%.

Moving forward, it is obvious from most indicators that the U.S. economy is far from being in a recession. This, therefore, means that the drop in stock prices could help the market shift back to fundamentals after years of focusing on the Federal Reserve and its ultra-low interest rate policy – and also provides a positive entry price for traders and investors.

A provision of fair value in stocks due to the market drop is an encouraging factor, and risk can now be better calculated based on the economy, as well as company profits and revenue – and not the result of the Fed influence.

A quick look at several companies that will be reporting today –

• Morgan Stanley is expected to report a decline in fourth-quarter profit amid weak trading revenue and a drop in the Wall Street bank's typically stable wealth management business.

• UnitedHealth, the largest U.S. health insurer, reports fourth-quarter earnings that are expected to rise a bit from last year.

• IBM Corp is expected to report fourth-quarter revenue slightly below analysts' average estimate due to the strong U.S. dollar and weakness in demand from China and emerging markets.

• Bank of America is expected to report a rise in fourth-quarter profit as lower expenses are expected to mitigate sluggish revenue growth.

• Netflix is expected to report fourth-quarter profit below consensus -- earlier this month, Netflix went globally in more than 130 countries – where spending on its international expansion has so far hurt profits.

• Delta Air Lines Inc, the third-largest U.S. airline by capacity, should have benefitted from the raw cost for jet fuel, but the stock has not improved.

• Advanced Micro Devices Inc's fourth-quarter profit is expected to miss analysts' average expectations.

Therefore, despite China’s bumpy landing ahead, the U.S. economy is still on a sound footing, and is providing many great opportunities through the U.S. stock market, and members of Stock Options Made Easy (S.O.M.E.) will be making the most of these!

Best of Trading,
Ian Harvey
Director of Stock Options Made Easy

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