The Dow Stands Up to China

China Rocks Markets Worldwide

The big news of the week was the Chinese currency devaluation. China, in an effort to boost exports and keep their economy booming, artificially inflated the yuan. This move will lead to cheaper exports, which is vital to the Chinese economic machine. The Chinese economy's lifeblood is exports. In fact, China exports more in terms of real goods than any other country in the world. And it exports most of them to America.
Even though the devaluation hurt markets worldwide, the average Walmart (WMT) shopper is going to notice cheaper prices on the shelf.
But the move did shake markets around the world. Asia is still recovering, and Europe was in the red for most of the week. The only market that was really able to stand up to the move by China was ours. All three major indices had an up and down week, but they ended it in the black. That exposes the fundamental strength of our market. On a week when Germany lost 4.4%, the Dow ended up 0.60%. This week could have big implications moving forward, especially with the Fed. If our markets are stable enough that changes in Chinese currency hardly make a dent in trading, the Fed may decide that changes in our own currency won't break the market either. This week could be the best indication yet that the Fed will raise rates in September.

Google to Reorganize as Alphabet

The other big news of the week was Google's (GOOG) announcement that they would reorganize as Alphabet. The new entity will act as a holding company for Google and everything they do going forward. Alphabet will have Google's original founders at the helm, and other people have been promoted from within in order to fill the gaps in Google's management. Alphabet will be responsible for organizing all of Google's ongoing projects. Although the ticker symbol will stay the same, the reorganization is a big one. Google projects, like their experiments with self-driving cars, will have a home in Alphabet that fits better with the management structure than they would have under Google. The move is really all about management. Right now, Google is doing their best to split management between two essential jobs. On one hand, Google is home to a lot of mature products, like search and GMail, which need to be managed a certain way. On the other, Google also has a lot of R&D going on -- like a drone delivery service -- which need to be managed with an eye toward creativity. This split will make it easier for Alphabet to manage in distinct ways.

Oil's Big Fall

The price of crude oil took a tumble this week. Due to a mix of market instability and a supply glut, the bottom fell out of the price of oil yet again. Nobody can say for sure just where the price of oil will end up. It's fallen through all of the support points so far, and still tumbling lower. The price of oil fell from $45 to $42 over the course of the week. The problem is only exacerbated by the way that foreign markets tanked this week. Demand is down, not just in the US, but worldwide. Europe is using even less gas than normal, thanks to their ongoing series of crises. Regardless of demand, cuts to supply could stop the bleeding but nobody appears willing to take the first steps. OPEC is producing at record levels and so is the US. Since neither producer is willing to pull back, and with a possible emerging supplier in Iran, prices will probably continue to fall.  
Published on Aug 15, 2015
By Aaron Phillips
Aaron Phillips is a financial researcher and journalist based out of Michigan. He regularly writes the IG Daily and IG Weekly columns.

Copyrighted 2016. Content published with author's permission.

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