Argh, no fun to end the week and another interesting week ahead with plenty of catalysts to trade but even thinner markets than usual with much of Asia celebrating the Lunar New Year.
Friday saw the week end poorly for stocks with the Dow and S&P collapsing more than 1% and the Nasdaq losing more than 3%. That was after the jobs report missed to the downside with a print of just 151,000 for January’s non-farm payrolls. Confusingly, unemployment was lower and wages were up. But at the end of play, Friday’s losses left the Dow down 1.59% for the week while the S&P 500 and Nasdaq were 3.10% and 5.44% lower for the week.
Locally after a wild week of volatility for the energy and mining stocks which bounced strongly intra-week from their lows, on the back of the rally in crude oil, the ASX lost half a percent for the week when the market closed Friday and then another 1.1% in futures trade Friday night.
BHP and Rio Tinto, which were up 4.85% and 3.2% respectively Friday, lost 0.5% and 2.15% in London trade and likely face further losses when the market opens for trade Monday given the price of oil collapsed again Friday.
Likewise, the Australian dollar which rallied to a high of 0.7243 Thursday, finished the week at 0.7090 crushed by a reversal in commodities and the fall in risk appetite.
The volatility of volatility is rising as Kevin D Anderson of State Street Global Advisers told us during the week. We better get used to it he said.
Last week proved his point, this week likely will too.
Lunar New Year, Chinese reserves data. Data released over the weekend shows that China’s massive foreign exchange reserves shrank for the third month in a row to the lowest levels since May 2012. During January reserves dropped by $99.5 billion to $3.23 trillion. That was slightly more than the $3.2 trillion markets expected in their poll Reuters said after the data was released.
At $99.5 billion the fall is second only to December’s drop in reserves of $107.9 billion. That highlights the trouble Beijing is having restraining capital flows and fighting the trend toward a weaker Yuan. For the year to December reserves dropped $513 billion. But if the current pace keeps up, China will burn through more than $1 trillion of its war chest this year.
With China, and much of Asia, on holidays for the Lunar New Year celebrations we may avoid the ructions this data could cause this week. But, expect this to remain a big story for 2016.
US economic strength is on the slide, Fed and US dollar rethink. China might be an interesting story but it is the Fed and the path of US interest rates which are central to the market ructions in 2016. That’s because what the Fed does impacts on the relative pricing of almost every asset on the planet and especially the US dollar.
Last week markets started to think maybe the Fed won’t be tightening in March with Goldman Sachs dropping their call for the March hike. Friday 151,000 print for non-farm might have raised a few eyebrows, not least because unemployment fell to an 8 year low of 4.9% even though jobs number undershot. But it’s reinforced the notion that the Fed might spend more times on the sidelines in 2016 than many thought. But that doesn’t mean traders can relax. Stocks fell as a result of the weak data. Likewise, with Euro close to 1.12 and the USDJPY below 117, efforts by the ECB and Bank of Japan to kick start their moribund economies are now being threatened.
The Fed might be on hold. But that’s just pushed volatility to another corner of the market it seems.
Australian Calender – (courtesy NAB Economics)
- It’s a much quieter week as far as the local data flow is concerned with the monthly NAB business survey for January out Tuesday and the Westpac-Melbourne Institute monthly measure of consumer sentiment the main highlights ahead of RBA Governor Glenn Stevens’ testimony to the House of Representatives standing committee on economics on Friday morning.
- NAB Monthly Business Survey Without blowing our own trumpet too hard, the NAB survey provides a very up to date view of business confidence and conditions with its tracking of the domestic economy. Recall that in December business conditions remained above average at a reading of +7.
Business confidence was also a little softer in December, down from +5 to +3, back to the level it was in October. The survey also provides an up-to-date reading of labour demand. Employment conditions in December ease back to neutral – reading consistent with modest employment growth per counter to the well above trend ABS employment growth through the end of the year.
Governor Stevens Testifies The market will then be thinking what pearls of wisdom will appear from RBA Governor Stevens when he fronts up to the House of Representatives economics committee on Friday morning in his half-yearly testimony. No doubt he will be sticking pretty much to the themes evident in his end of year AFR interview and, most recently, what’s been written in the post Board media release and this morning’s Statement on Monetary Policy.
He will be asked many questions about the risks to the outlook, the outlook for the global economy in the light of recent market and economic events including the crash in oil prices and continuing concerns about the economic and financial health of the Chinese economy. All big and important questions. His views on the domestic economy and the exchange rate will receive an equal grilling from MPs, as well as the durability of the improved labour market through the latter part of last year and another round of discussion on how much or little further monetary policy easing can durably assist Australia’s economic performance over the next little while.
Housing finance approvals for December are also out Friday, a further gauge of mortgage demand into the end of the year. As well, ANZ Job Ads are on Monday and the HIA new home sales report for December is being released Wednesday. Also being released this week are NAB’s December quarter business surveys of commercial property and the SME business survey.
International Calender (also courtesy NAB Market Economics)
Global: The International Energy Agency (IEA) releases its Oil Market Report on Tuesday. Last month’s report caused significant market gyrations in the oil market and also equity markets given their high correlation recently with the IEA warning “the oil market could drown in over-supply”.
NZ: Monday public holiday, QV housing report Tuesday, possibly also REINZ housing report sometime in the week; electronic cards transactions Wednesday and PMI manufacturing Thursday. Food prices Friday.
China: Chinese Lunar New Year holidays. Monthly lending — money supply reports possibly later in the week.
US: Fed Chair Yellen testimony Wednesday, Thursday the highlights. Also Fed’s Labour market conditions index Monday, NFIB small business, J0 LTS job openings Tuesday, Fed’s Williams Wednesday, retail sales and consumer sentiment Friday.
Japan: Current account, Economy watchers survey Monday, Machine tool orders Tuesday.
Euro: Sentix investor confidence survey Monday, ECB speakers Tuesday, and industrial production, GDP Friday.
UK: Trade Tuesday, industrial production Wednesday, RICS house price balance Thursday.
Canada: Housing starts Monday, house prices Thursday/Friday .
Business Insider Emails & Alerts
Site highlights each day to your inbox.