The Week that Was
Stocks around the globe, and markets more broadly, opened 2016 under acute pressure. That was after a combination of concerns about the weakening Chinese Yuan and Chinese economy, collapse in Shanghai stocks, face-off between Iran and Saudi Arabia, and the massive gain in US non-farm payrolls came together to form a perfect storm.
As a result, and with many senior traders still on vacation, investors hit the sell button as trillions of dollars in market capitalisation was wiped off stock markets. In the US, the S&P 500 dropped 6% while the Dow lost 6.2%. In the UK, the FTSE dropped 5.3% while the DAX in Germany was hammered more than 8% lower last week.
In Asia, the Shanghai composite was only down 10% on the week. That was after trade was suspended when stocks fell 7% after less than 15 minutes of actual trade on Thursday. Government authorities abandoned their circuit breakers as a result and stocks rose 2% Friday.
In Tokyo, stocks fell 7% on the week while the ASX dropped 6.2% to close the week below 5,000 at 4,990.
A bad week for stocks was a bad week for risk assets generally. So while bonds rallied and crude oil crashed, the Australian dollar also came under acute pressure. Having closed 2015 at 0.7275, the Aussie closed the week at 0.6951. That’s a fall of 4.45% to kick off 2016. It’s also left the Aussie less than a cent above the 2015 low.
Elsewhere, Nymex Crude Oil closed the week at $33.16 — the lowest level since the December 2008 low — while the Japanese Yen rallied, pushing the USDJPY rate down to 117.24 — its lowest level since August and another example of the level of fear that has gripped traders and markets to kick of the year.
The Week Ahead
After US non-farm payrolls Friday and the huge moves on global stock, commodity and forex markets, this week shapes up as another big one for traders.
To kick things off, traders will have to digest the Chinese Consumer prices (1.6% yoy in December against 1.5% expected) and Producer prices (-5.9% yoy against -5.8% expected) released Saturday.
But the team at Deutsche Bank’s strategy unit, writing in their DBWeekender publication, said they think this week might be a bit different from the carnage in markets that opened the year. The adults will be back in charge apparently. Here’s what they wrote (our emphasis):
You see the same thing after many holidays: while some senior portfolio managers squeeze out a few more days away, market jitters have their juniors squealing for mummy and reaching for the sell button. Expect a tad more perspective next week when bosses switch on their screens for the first time since December 18th.
We’ll see, but let’s hope so.
In the meantime, traders and markets also have to navigate a calendar of data and events which will keep them on their toes.
Locally in Australia, we get a look at the two drivers of the domestic economy — employment and housing. Monday sees the release of the ANZ Job Ads series with housing finance out on Thursday.
But the big data point will be the release of Decembers employment report on Thursday at 11.30am AEDT.
The NAB’s market economics team in their What to Watch publication said Friday that we have been some issues with the monthly data recently which the NAB says last month’s reported 71,400 growth in jobs has been subject to “sampling quirks” and “excluding sample rotation issues the actual employment number was a mere 5.3k! and below the 14-15k jobs a month needed to keep the unemployment rate from rising!”
Even though the actual number of jobs created each month remains prone to volatility, the NAB says the sample rotation issues causing the statistical quirks in the survey do not impact the unemployment rate. That said they are looking for a “reversal of the previous months sampling issues and forecast jobs growth at -25k for December. Importantly this does not change our view of a trend improvement in the labour market, but just reflects a reversal of statistical quirks in the sample. For the unemployment rate, we accordingly look for some retracement to 5.9%, from 5.8%.”
US non-farm payrolls is arguably the most important data release each month globally. But Chinese trade data, to be released for December on Wednesday at 2pm AEDT, is the second most important release each month.
Given the concerns surrounding Chinese growth in the wake of the release of weak manufacturing and services PMI, which was such a large part of the market dislocation last week, this trade data is more important than ever. Traders will be looking at what the import and export figures tell them about the outlook for both Chinese and global growth.
In the US, Retail Sales and Industrial Production are out Friday and are the highlights. But there is a raft of Fed speakers. Traders will be hanging onto every word to see if the market turmoil has impacted the Fed’s expectations that it will be raising rates four times in 2016.
Elsewhere, Japan releases the trade balance and Eco Watchers Survey on Tuesday. In Europe, the EU releases Industrial production Wednesday, Trade Balance Friday, while German GDP is out Thursday.
Across the Channel in the UK, there is a BoE meeting Thursday and traders will be looking for comments on recent Chinese developments.
2016 has started with a bang. Mandelbrot, and any study of the history of markets, tells us that volatility clusters. So it could be another big week.
Here’s the NAB’s excellent diary of all the key data and events for the week ahead.
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