Last week was a largely bearish week for investors all around the world. All the major indices were in the red, amongst the uncertainty about China’s economy, a slump in Chinese equities, along with the dampening of the oil price.
US: Sluggish start to the New Year
All the major US indices finished with the worst start to the year in history. The S&P 500, Dow Jones Industrial Average, and the NASDAQ each lost around 6% at the end of last week.
Investors are eyeing the volatility within the Chinese economy, along with mixed US economic data, as unemployment claims grew more than forecasted but more jobs were added, and the weakening of the crude oil price to 12 year lows.
This would likely be heavily considered within the Federal Reserve and the FOMC (Federal Open Market Committee), whether they have the justification to continue their programme of ‘gradually’ increasing interest rates within the US economy.
Oil Continues to Slide
Crude Oil continued its decline in the New Year, falling to around US$33 a barrel.
Renewed tensions between Saudi Arabia and Iran, with the Saudi execution of a prominent Shiite cleric, along with the attack on the Saudi embassy in Tehran, has coincided with speculation that the Saudi’s will rapidly expand their oil production, in order to harm an economic sanction free Iran.
US Crude oil inventories data showed that there was a decrease, by around 5 million barrels. However, US Gasoline inventories increased by around 10 million barrels.
Uncertainty within China
The Chinese markets had one of its most surreal starts to 2016, as weaker than forecasted manufacturing data caused a mass selloff that caused the government to interfere with the so called ‘circuit breaker’ that was abandoned a few days later.
Both the Shanghai Composite and the CSI 300 are down around 10% for the week. The state intervention was a controversial topic amongst analysts, with many arguing that the ‘circuit breaker’ exacerbated selling as investors tried to sell before the door shuts. The ‘circuit breaker’ automatically closed the market for the day, if any respective index contracted by more than 7%.
Whilst nobody knows if the decrease may have been higher, had the state not implemented the ‘Circuit Breaker’, Chinese officials abandoned the measure which seemed to have calmed the market on Friday.
ASX: Negative Sentiment Back Home
The ASX reacted to the worldwide gloom in very much the same way.
The S&P/ASX 200 fell around 5.7% for the week, as weaker commodity prices caused mass declines for Oil miners Santos (ASX:STO), Woodside Petroleum (ASX:WPL), BHP Billiton (ASX:BHP) and Rio Tinto (ASX: RIO).
However, with the continued tensions within the Middle East, along with the volatility within the Chinese markets, Gold surged up to above US$1,100 an ounce. This supported gold miners Newcrest (ASX:NCM), which increased by around 2% for the week.
Upcoming Economic Data
All times will be denominated in AEDT (Australian Eastern Daylight Time)
11.30am: ANZ Job Advertisements
8.30am: US Crude Oil Inventories
1.00pm: Chinese Trade Balance
11.30am: Australian Unemployment Rate
11.30am: Australian Participation Rate
8.00pm: German Real GDP
12.30am: US Unemployment Claims
11.30am: Australian Home Loans
12.30am: US Retail Sales
1.15am: Industrial Production
Author: Simon Herrmann
Jan 11, 2016
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.