Posts Tagged ‘AA’

Blame it on China

The stock market dropped a little bit yesterday thanks to Alcoa bombing its earnings report and dropping 11%.  It seems investors are starting to worry a little bit more about how the economy is doing.

A bigger problem for today is what’s happening in China. China decided to raise reserve deposits for the banks. This spooked investors who think that China… the country that is leading the global recovery… will kill the global recovery. Overnight, Japan’s Nikkei 225 stock average was down 1.3 percent, and Hong Kong’s Hang Seng slid 2.3 percent.  The Shanghai benchmark tumbled 3.1 percent.

Then came news that Google will stop censoring results in China and might even abandon its China offices in response to a highly complex hacking attack on its servers. Apparently some hackers out of Taiwan hacked into a few Gmail accounts of suspected human rights leaders. While Google didn’t outright say that these attacks came from the Chinese government, it sure as hell implied it.

As you can imagine, Google stock is down. It’s not that Google makes that much money off of China. It’s just the prospect of losing the biggest customer base ever that’s hurting its share price.

The selloff will probably continue early in the morning but things could change around 2:00 PM. That’s when the Fed Beige Book of economic activity hits. This is what the Fed uses during its interest rate deliberations. If this report shows a strengthening economy, the market could move higher.

I think the power of the Federal Reserve printing press combined with holiday shopping and an inventory rebuild will ensure that numbers come in at the top of their ranges or better than expected.

Will this be enough to push the market to new highs? It’s hard to tell. The market is starting to turn more bearish according to an Investors Intelligence report on January 4^th. But, it still remains at historic lows.

The market has also struggled to climb to new highs, even while volume is climbing. Seems that buyers are getting a little more exhausted and even overwhelmed by sellers.

Fundamentally, consumer credit is contracting at an alarming rate. The number of workers who have given up looking for a job is at all time highs. And there is no evidence that consumer demand can sustain the economy after the inventory rebuild and stimulus run its course by the second half of 2010.

Since the stock market is forward looking,  the stock market should start a downtrend sometime in the next few months.

Stuff to Read…

Google to end China censorship after e-mail breach

Weaker Alcoa results, China news drag stocks lower

NY Fed to be subpoenaed on AIG pass thru payments