Mid-Day Report: Leap-Year Day Edition

Stock markets in China fell again to kick off a new week, despite the country’s central bank deciding to add more liquidity by lowering the amount of capital its banks need to hold in reserve. The move — just 0.5 percent — nonetheless is expected to free up 700 billion yuan, or roughly $108 billion.

Understood to address a growing liquidity shortage in China, one might be compelled to see this as a positive development for China and, by extension, the global economy. But as this follows two months of harsh reserve requirements designed to help bolster the value of the yuan, it creates a bit of uncertainty in the market. And we know how markets love uncertainty.

Clearly the Chinese central bank is determined to sort out its various issues related to growth, demand and value. But this latest move has sent Chinese stocks spiraling down to their lowest levels in 14 months. As the saying goes, “No good deed goes unpunished.”

Crude oil also fell again overnight, but look to be bouncing back slightly in the pre-open market. Much like the China central bank tries myriad solutions to stem the tide of dwindling value in its currency, Brent and WTI prices are attempting to firm up by cutting oil rig counts.

However, oversupply is not an issue that will magically go away on its own, and as crude prices continue to struggle, this will put many oil-producing companies into further financial difficulty.

The G-20 Summit over the weekend in Shanghai, with the results amounting to more worry on behalf of global financial leaders. These concerns are the usual suspects investors in the U.S. markets have been sweating for the better part of a year now: market volatility, fears of falling currency valuation, etc. The U.S. dollar has scaled back from its Friday highs in Monday’s trading.

In the waning Q4 earnings season, the bad news just keeps coming for Lumber Liquidators (LL). The flooring company missed analyst expectations, and same-store net sales plunged following concerns reported by the Center for Disease Control, among others, about the suspect quality of the laminates used in the company’s laminates and other materials.

So with this tossed salad of mildly negative news ahead of Monday’s open, we actually saw futures up slightly in U.S. markets and the mild rally continues through mid-day.

Consider this part of the relief rally Zacks Strategist Kevin Cook speaks about today in this morning’s Profit from the Pros segment. In any case, Happy Leap Year Day! May the additional 24-hour period in 2016 add to your portfolio gains this year.

Mark Vickery
Senior Editor
(Mark Vickery is covering for Sheraz Mian, who is off on business.)
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