The Week that Was
Market sentiment went from bad to worse last week as traders and investors continued to fear buying almost any asset on the planet except bonds. The Dow finished the week on Friday with another poor session falling 391 points. The S&P 500 dropped 2.18% closing back under 1,900 for the first time since last August’s market meltdown while the SPI 200 March futures contract dropped another 87 points, 1.8%, suggesting a poor start to trade on the ASX when it opens the week.
Sentiment was so poor that even gold couldn’t rally amongst the acute spike in risk aversion and selling.
At week’s end, the Australian dollar, one of global financial markets’ best indicators of growth, risk and sentiment, had made a fresh 6-year low closing at 0.6868 after hitting 0.6828 during Friday’s night’s session. That took the fall in the first two weeks of 2016 to more than 6 cents, 8.1%.
Nymex crude crashed close to 6 per cent Friday to end the week below $30 a barrel at $29.42, the lowest level since late 2003. That took the weekly loss to more than 10% with prices almost 18% below where they were trading one month ago. Overall commodity prices, as measured by the Thomsen Reuters CRB index, fell to 160.4, also the lowest since 2003.
While the Aussie dollar is a great bellwether for market sentiment, and the crude oil and commodity weakness is in no small part one of the causes of the market’s 2016 dislocation, it is the weakness in stocks which is reinforcing the negative feedback loop at the moment.
The feeling of fear in the US stock market on Friday was neatly summed up in a tweet from the ReformedBroker.
Not much enthusiasm for staying long into a 3-day weekend as it dawns on traders that the Shanghai will be open Monday.
— Downtown Josh Brown (@ReformedBroker) January 15, 2016
In a note Friday, NYSE floor Governor Rich Barry highlighted 5 things that need to be resolved before this current weakness in markets can be resolved.
- Oil stability;
- Chinese currency stability;
- Positive guidance on corporate earnings;
- The Fed to lower its rate hike expectations. (Yesterday, [Art] Cashin said we will see a 0% Fed Funds Rate before we see 1%.)
- Less uncertainty on global economic growth, (which is the biggest reason why crude is cratering).
That’s some wish list.
The Week Ahead
But with US markets closed for Martin Luther King Day on Monday night in Australia and Asia, there is every chance that this week, which includes the release of vitally important Chinese GDP and US Consumer price data, is another week of acute anxiety.
In Australia this week, the NAB’s economic team said in their weekly What to Watch publication on Friday that it’s a “sparse week for data which should give analysts time to reflect on data to date and the extent to which lower commodity prices and developments in global markets are impacting on the domestic economy.”
That’s only if traders and investors are allowed the chance by what happens in global markets.
In terms of the actual releases, we kick off the week Monday with the release of the TD Securities Inflation measure. Inflation, or global lowflation as many forecasters are starting to call it, is an important theme in 2016 and the TD monthly gauge “could garner some interest ahead of the official inflation numbers the following week,” according to the NAB.
Then we get weekly Consumer Confidence Tuesday to be followed by Westpac’s monthly measure on Wednesday.
Consumer Sentiment could suffer under January’s market ructions. Westpac said in their weekly economic preview Friday that the January survey was, “in the field over the week ended Jan 16.” That means the release on Wednesday could be a shocker.
Also out Wednesday, is the ABS Building Activity report which, the NAB says, “will give much more detailed information on the state of residential construction.”
China releases December house price data on Monday. But its fourth quarter GDP, retail sales, industrial production, and urban investment on Tuesday are going to be very important data points for global markets.
Surveys suggest that the market is looking for a small reduction in the annual rate of growth to 6.8% in 2015 with a 1.7% growth rate for the quarter. Retail sales are expected to grow 11.3%, slightly better than last month’s 11.2%. Industrial production is forecast to slow a little to 6.2% while urban investment is expected to print 10.2%, unchanged from the previous month.
In the United States the release of consumer price data on Thursday is another key hurdle for the markets. Inflation data has not been this important to traders for some time. That’s because while interest rates close to zero are clearly incompatible with the strength of the US labour market, its inflation — or lack of it — is what the market will be focusing on to gauge whether the Fed will deliver the 4 interest rate hikes expected in 2016.
Markets forecast is for an increase in headline CPI in December to 0.8% from 0.5% in November. Given the market is expecting a flat result for the month, this is expected to come from a change in the base effect. Core CPI, ex-food and energy, is expected to print 2.1%.
Elsewhere Germany, the Eurozone and the UK also release consumer price data. Traders will be watching this closely for hints of further delays in the Bank of England’s plans to increase interest rates and the ECB’s interest rate policy and quantitative easing.
The ECB also has a policy meeting.
It’s another big week for traders and markets. Will a circuit breaker to the fear, risk aversion, and selling we have seen in the first two weeks of 2016?
That’s the open question traders will be asking.
Here’s the NAB’s excellent diary of all the key data and events for the week ahead.