What’s Bugging the Market? Just like in August of last year, this week the market participants around the world have all decided to decrease their risk and move into “safe” asset classes. China Scare Causes Market Free-fall on First Trading Day of 2016…Yesterday saw the worst ever start of a year for the Chinese Stock Market. After falling 7%, the CSI 300 Index was halted by the Chinese authorities. 2016, Off to a Rocky Start in The MiddleEast…Conflicts in the Middle East have kicked off a market sell off. Stocks across the board have fallen and risk off currencies have appreciated.
What’s Bugging the Market?
7.01.2016 This week has been a bit of a rollercoaster. I imagine many individual and institutional investors have had a tough few days, with many scrambling to cut losses. The worst thing you can do when markets have this risk off sentiment running throughout them is add to your loses. Margin calls can become pretty popular during times like these! The main cause behind all this fearful selling is of course China. Just like in August of last year, this week the market participants around the world have all decided to decrease their risk and move into “safe” asset classes, such as Gold, the Yen, the Swiss Franc and U.S Treasuries.
It all began on Monday when Chinese markets kicked the selling off due to two main reasons: a poor Caixin Manufacturing report and more importantly the potential lifting of a Chinese ban on institutional selling of certain investments, which was due to expire by the end of this week and now looks to be extended. To add more fuel to the fire we then had poor ISM Manufacturing and Non-Manufacturing reports from the U.S along with a poor Caixin Service PMI report and news that North Korea detonated a hydrogen bomb. For now the markets look to be moving lower. The S&P 500 has set itself up for a weekly close below 2000 and should probably head towards 1895. Oil is making lows not seen since President George W. Bush’s first term and for the second time this week the Chinese were forced to stop trading. Currently it doesn’t look good, however we’ve got to remember what Rockefeller said: “Buy when there’s blood in the streets”. Don’t be scared and stick with the overwhelming fundamentals!
What to Expect from the Fed’s Meeting Minutes this Evening
6.01.2016 To be honest I don’t think the meeting minutes today will cause much volatility. It’s highly unlikely that anything is mentioned in the minutes that hasn’t already been said and isn’t therefore priced into the markets. However, it will be interesting to get a better idea of the individual opinions behind the FOMC members in order to gather whether any particular members were completely opposed to the hike we saw in December. The big question from these minutes is of course whether or not we can get any idea on when the next hike will come. Currently the debt markets aren’t entirely convinced on March as the next kick off date. Moreover, it is likely that the Fed will hold off until potentially June for the next hike if employment figures don’t remain stable. Therefore, Friday’s NFP number is of great significance and should decide the direction of the dollar over the next few weeks. Fed officials have said on numerous occasions that they expect to hike at a gradual pace and are almost certainly expected to hold still at their next meeting. The bulk of analysts do expect March to be the next hike, and I’m in agreement. If they want to get 3-4 hikes done before year end then they’ll need to move relatively quickly and disperse the hikes appropriately. Either way, unless there is something in the minutes that either confirms or dismisses a hike in March 100%, then I doubt we’ll see too much action. Expect choppy markets going into it, and more consolidation post the event.
China Scare Causes Market Free-fall on First Trading Day of 2016
5.01.2016 Yesterday saw the worst ever start of a year for the Chinese Stock Market. After falling 7%, the CSI 300 Index was halted by the Chinese authorities. Trading was stopped completely, leaving the CSI to finish up with the worst daily losses in nine years at 3296.26. The Hong Kong Index (Hang Seng) closed at 21,327.16, 2.68% down and the Shanghai Composite Index finished up 8.2% down at 2,119.16. Everything was kicked off as investors speculated that the end of a ban on share sales by major stakeholders may come to an end as soon as this week. The Fall in the Caixin Index, showing the fifth straight month of contraction then added fuel to the fire. The selloff in Chinese Equities rippled through global markets causing global risk off sentiment. The S&P 500 tested 2000 and the FTSE broke 6100. After Black Monday in August last year, the Chinese authorities instituted their circuit breaker rules, which were first used yesterday. Under these rules a move of 5% in the CSI 300 causes a 15 minute halt in stocks, options and index futures, while a move of 7% actually closes the market for the day. After the first breaker took affect, the second only took seven minutes to take affect once trading began again. This was most likely due to the major retail selling which makes up more than 80% of the Chinese stock market. Yesterday just goes to show how new and inexperienced Chinese retail investors are. Probably best to expect a few more instances like yesterday during 2016.
2016, Off to a Rocky Start In The MiddleEast
4.01.2016 What a start to the year. Conflicts in the Middle East have kicked off a market sell off. Stocks across the board have fallen and risk off currencies have appreciated. It all started with the execution of a Shia cleric named Sheikh Nimr by Saudi Arabia over the weekend. He was beheaded for terrorism along with 46 others. In an interview with the Iranian state news agency, the largely Shia Iranian foreign ministry spokesman, Hossein Jaber Ansari stated the following: “The Saudi government supports terrorists and takfiri extremists, while executing and suppressing critics inside the country.” While Sunni/Shia tensions are nothing new, the fact that tensions have so quickly escalated between the two opposing powerhouses in Saudi Arabia and Iran poses huge uncertainty for not only the OIL market, but the entire forex risk-on paradigm. The Saudi embassy in Tehran was firebombed and this morning we have seen Saudi Arabia sever all diplomatic ties with Iran, expelling Iranian diplomats from the country and giving them 48 hours to leave its borders.
