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Wednesday, October 26, 2016

By Sinead Carew

NEW YORK (Reuters) — Wall Street advanced while European shares and commodities fell on Wednesday as investors balanced strong U.S. economic data with fears about China’s slowing economy.

The benchmark S&P 500 was up 1.2 percent in midday trading, off its earlier highs, helped by stronger-than-expected data on durable goods orders and policy comments.

Europe’s FTSEurofirst 300 index of major companies (FTEU3) closed down 1.6 percent after a choppy trading day. China’s key share indexes ended down after attempts to move higher were slapped back by waves of selling several times, reflecting hopes for more government and central bank support.

The Shanghai Composite Index (SSEC) ended down 1.3 percent, its fifth straight day in the red as Beijing also dished out another round of trading bans.

“Everybody’s just on guard and aware of the potential for greater volatility than we’ve seen in quite a while. We’ve seen investors dip their toes and buy high-quality names they like that they can get cheaper,” said Brian Fenske, head of sales trading at ITG in New York. He added, “You could call me two hours from now and we could be down.”

At 11:42 a.m., the Dow Jones industrial average (DJI) was up 188.66 points, or 1.2 percent, at 15,855.1, the S&P 500 (SPX) gained 21.95 points, or 1.18 percent, to 1,889.56 and the Nasdaq Composite (IXIC) added 50.78 points, or 1.13 percent, to 4,557.26.

U.S. stocks had slumped in the last hour of a volatile session on Tuesday as investors looked to avoid overnight exposure.

The CBOE Market Volatility Index (VIX) was still elevated at 34, indicating significant uncertainty, but the “fear index” was well below Monday’s 6-1/2 year peak of 53.3.

Most U.S. Treasuries prices turned positive on Wednesday, erasing earlier losses, after New York Federal Reserve President William Dudley said a U.S. Federal Reserve September rate hike seems less compelling than a few weeks ago in the wake of recent global market turmoil.

The dollar index (DXY), which measures the greenback against a basket of major currencies, fell after the comments but was up 0.3 percent later in the morning.

Despite China’s struggles, Asia markets had some bright spots. Japan’s Nikkei (N225) saw a 3.2 percent jump and Korea’s KOSPI (KS11) showed its biggest jump in two years with a 2.6 percent increase.

Oil prices were hurt by a bigger than expected increase in U.S. gasoline stocks, compounding negative sentiment from worldwide equities that pushed fuel prices to 6-1/2-year lows.

Brent crude futures (LCOc1) were last down 0.4 percent at $43.04 per barrel, while U.S. crude (CLc1) was down 0.7 percent at $39.05.

Copper (CMCU3), often considered a proxy for Chinese and global economic activity, was down 2.7 percent tumble while prices of gold (XAU=), traditionally a safe-haven asset, were off 1.5 percent.

(Additional reporting by Sujata Rao in London, Saikat Chatterjee in Hong Kong; Editing by Giles Elgood and Nick Zieminski)

Photo: A man shelters under an umbrella as he walks past the London Stock Exchange in London, Britain August 24, 2015. REUTERS/Suzanne Plunkett

  • Dominick Vila

    It remains to be seen whether or not China’s decision to lower interest rates, devalue its currency, and inject billions into the economy is enough to overcome the excesses of the past. The main problem affecting the Chinese economy involves unrealistic expectations and over building. The constructions of thousands of apartment and office buildings when the Chinese economy was growing at 8% to 10% a year, and the sky was not the limit, dependence on imports, especially for critical commodities, and the fact that the Chinese government was caught flat footed by the decision of so many Chinese investors to invest their dollar holdings overseas instead of at home, will take years to correct. Add to that the strength of the U.S. dollar, which remains the currency of choice for most investors and entrepreneurs worldwide, and China’s challenges are going to take a long time to overcome.

  • Eleanore Whitaker

    First of all, China doesn’t deal with an economic crisis in the same way the US does. The US knee jerk reaction to an economic crisis is bailouts and then increase prices and interest.

    China’s enormous population gives China far more leverage to deal with an economic crisis by lowering, not raising, interest rates. China can easily endure a ripple effect of lowering interest rates, dropping prices on exports and maintaining typical dynastic control over that massive population controlled by a communist, not democratic form of government.

    But let’s not try to pretend the US and its influence didn’t have a lot to do with China’s problems. Watch what happens to India and by association to the US, Mexico.

    It was the US that pumped billions into these countries, offshored American jobs and created the glut of foreign imports that jacked these countries economies.

    How stupid did conservatives have to be to not realize the impact of imposing mass austerity on Americans would create the ripple effect of less buying power and less buying of Chinese imports?

    The Wall Street cock roaches never learn. They’ve been trading in nanoseconds for a decade thinking always there is no consequence for short selling and overvaluating stocks. Really? And how well will those 401Ks do now that China is lowering its prices on goods and interest?

    What fools these mortals be…and Oh what tangled webs we weave when first we practice to deceive.

    Wall Street is playing the very same game the speculators of ’29 played by trying to “quell fears” to prevent massive stock and investment sell offs.

    And when banks who refused to obey the 2009 bank reform laws have to cough up all of the money Americans saved if they demand to withdraw?

    • Dominick Vila

      An important facet of China’s economic woes involves transitioning from an economy focused strictly on exports, to a consumer oriented economic modeled after ours.

      • Eleanore Whitaker

        According to the pundits interviewed on Consuelo Mack’s Wealthtrack, China intends to lower prices on goods internally and for export. If that’s true, it’s the opposite of what the greedheads in the US do when there’s an economic crisis. That’s what I meant when I said China doesn’t deal with an economic crisis the way the US does.

        When you strip away all the smoke and mirrors, the fact that China, India and Mexico are all so reliant on the US consumer, shows a huge weakness. China’s only other major debt is for oil.

        In May 2015, Janet Yellen, head of the Federal Reserve and Christine LaGarde, CEO of the IMF, both warned investment managers that they were “overvaluating” investments and that was a “high” risk.

        Risk is an inevitability in any investment. The problem with Wall Street today is the nanosecond trading. When they make trades with such lightening speed, the idea is to reduce risk. It does anything but given that many investments are linked globally and one tiny slip in a foreign economy and the ripple effect increases risk.