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PM Bulletin: Gold
29 Jan 2016
AM Bulletin: BOJ takes rate negative
29 Jan 2016
PM Bulletin: BOJ in focus
28 Jan 2016
AM Bulletin: FOMC disappoints, but earnings offer support
28 Jan 2016
PM Bulletin: Facebook reports after the close
27 Jan 2016
AM Bulletin: Crude still driving equities
27 Jan 2016
PM Bulletin: Tomorrow’s FOMC meeting
26 Jan 2016
AM Bulletin: Equities slide on crude sell-off
26 Jan 2016
PM Bulletin: Silver chart
25 Jan 2016
Weekly Bulletin: Promise of further stimulus halts equity slide
25 Jan 2016
PM Bulletin: EURUSD chart
22 Jan 2016
AM Bulletin: Equities rally on ECB and oil
22 Jan 2016
PM Bulletin: Dovish Draghi triggers euro sell-off
21 Jan 2016
AM Bulletin: ECB meeting in focus
21 Jan 2016
PM Bulletin: Crude makes fresh multi-year lows
20 Jan 2016
AM Bulletin: Stocks slide as oil slumps
20 Jan 2016
PM Bulletin: Bank of Canada rate decision
19 Jan 2016
AM Bulletin: Equities surge on relief rally
19 Jan 2016
PM Bulletin: Crude oil - long-term charts
18 Jan 2016
Weekly Bulletin: China and oil weigh on equities
18 Jan 2016
PM Bulletin: Long-term gold bullion chart
15 Jan 2016
AM Bulletin: More woe from China
15 Jan 2016
Holiday Schedule: Martin Luther King Day Monday 18th January 2016
14 Jan 2016
PM Bulletin: Equities: bull or bear?
14 Jan 2016
AM Bulletin: Investors remain jittery
14 Jan 2016
PM Bulletin: The Bank’s rate decision
13 Jan 2016
AM Bulletin: Oil rebound lifts stocks
13 Jan 2016
PM Bulletin: Saudi Aramco’s IPO
12 Jan 2016
AM Bulletin: Crude closes in on $30
12 Jan 2016
PM Bulletin: US Fourth Quarter Earnings Season
11 Jan 2016
Weekly Bulletin: 2016: Trouble ahead?
11 Jan 2016
January: Non Farm Payrolls Out Today
08 Jan 2016
PM Bulletin: Another blow-out payroll number
08 Jan 2016
AM Bulletin: China effect calms markets
08 Jan 2016
PM Bulletin: Non-Farm Payroll look-ahead
07 Jan 2016
AM Bulletin: Equities slump after 2nd China trading halt
07 Jan 2016
AM Bulletin: Investors remain jittery
06 Jan 2016
AM Bulletin: China steadies and Europe rallies
05 Jan 2016
AM Bulletin: Chinese equities plunge
04 Jan 2016
 Monday 11 January 2016

Weekly Bulletin: 2016: Trouble ahead?



Week Ahead: Monday 11th – Friday 15th January

Economic Outlook 

It has been a dramatic start to New Year’s trading with global stock indices coming under selling pressure from the off. The ongoing melt-down in the Chinese stock market spurred last week’s tumble but in many ways that could be viewed as the straw that broke the camel’s back.

After all, equities ended 2015 with a whimper as the much-hoped for Santa Rally never materialised. There were a number of good reasons for that. Consider the commodity sell-off that began in mid-2014 and has yet to find a bottom. This has put enormous pressure on oil producers, miners and supporting industries, many of whom (tempted by unprecedentedly low interest rates) have taken on large amounts of debt to finance operations which are no longer profitable. Other corporates have tapped the debt markets to finance share buy-backs. These tend to benefit the management of such companies rather more than anyone else. Note also that US corporate earnings have now fallen for two successive quarters suggesting that repaying, refinancing or even servicing that debt is proving difficult. Last month we saw evidence of the cracks appearing in the junk bond market. Tying all this together is the strength of the US dollar. The greenback has being rallying ever since the summer of 2014 when the US Federal Reserve hinted at tighter monetary policy. Eighteen months later, and having ended quantitative easing in October 2014, the Fed finally bit the bullet and raised rates for the first time in close to ten years. Now it looks as if they are set to tighten further with a full 100 basis points pencilled in for the rest of this year. This should help keep a bid under the US dollar which will, in turn, place considerable strain on those emerging economies with significant amounts of dollar-denominated debt. This is because those countries have to pay more to buy back dollars when the debt falls due for repayment.

Meanwhile the People’s Bank of China is pushing the yuan lower, effectively exporting deflation to the developed world. Add in the Chinese slowdown and the cack-handed attempts of the authorities there to fight the markets, plus increased geopolitical instability in the Middle East with the growing hostility between Iran and Saudi Arabia, and you end up with a towering “wall of worry” for investors to scale.

But are we about to witness the kind of melt-down we saw in 2008/9? I’m convinced we will eventually, but perhaps not yet. Global central bankers seem as keen as ever to intervene whenever the market sneezes. This never used to be their role but it certainly is now. Given this, perhaps we shouldn’t be too hard on the Chinese authorities for their own interventions. It looks as if the markets will never be allowed to just get on with it and dish out appropriate rewards and punishments – not at the corporate/banking levels anyway. On the other hand, I can’t really see the US equity market making fresh highs this year either. I think there are too many headwinds as noted above.

This week’s major economic releases include:

Monday - CAD BOC Business Outlook Survey

Tuesday - GBP Manufacturing Production, Industrial Production; USD FOMC Member Fischer Speaks

Wednesday - CNY Trade Balance, Trade Balance; EUR Industrial Production; USD Crude Oil Inventories, Federal Budget Balance

Thursday - AUD Unemployment Rate; EUR Eurogroup Meetings; GBP Official Bank Rate, Monetary Policy Summary; ECB Monetary Policy Meeting Accounts; USD Unemployment Claims, FOMC Member Bullard Speaks

Friday - EUR ECOFIN Meetings; USD Retail Sales, PPI, Empire State Manufacturing Index, FOMC Member Dudley Speaks, Capacity Utilization Rate, Industrial Production, Consumer Sentiment, Inflation Expectations, Business Inventories     

Equities Outlook

It has been a truly awful start to the New Year for global equity markets. A number of key indices such as the S&P500, Dow Jones Industrial Average and FTSE100 have suffered record losses for this time of year. This follows the lacklustre performance which we saw at the end of 2015 when the major indices drifted lower as the year drew to a close.

The thing is that it was just over six months ago that investors were cheering fresh record highs for major indices such as the Dow, S&P, Dax, FTSE100 and Shanghai Composite. Back then most of the talk was focused on the “will they/won’t they” speculation over the timing of a rate hike from the US Federal Reserve. As we know, the doves on the central bank’s FOMC continued to prevail and this helped to keep stocks elevated as the low rate environment coexisted with mildly encouraging US economic data. Traders were also transfixed by the surge in China’s Shanghai Composite. By the summer of 2014 the index had spent the best part of a year trundling around the 2,000 level. Less than twelve months later it had surged over 150% topping 5,100 in June 2015. The rally was largely driven by retail demand for tech stocks and had come despite the obvious and dramatic slowdown that was taking place in the Chinese economy – something that was not only flagged up by data showing falling commodity demand and reduced electricity usage but also China’s official GDP and manufacturing numbers. When the bubble burst the Shanghai Comp fell 40% over the next three months. Initially European and US indices were slow to react but the dam burst in mid-August and the S&P500 lost over 10% in a week. Yet two months later the S&P was back above 2,100 and within 1% of its all-time closing high.

But crucially the major indices just didn’t have enough momentum to make new highs and since then they have rolled over. Chart-wise we can see significant resistance for the Dow (around the 17,800 area), S&P (2,080/2,100), FTSE100 (6,400) and Dax (around 10,800/900). It is probably too early to conclude that the bears are back in control, despite the fact that the bull market we’ve experienced since March 2009 is very long in the tooth. But with the US Federal Reserve apparently prepared to tighten rates by a full 1% this year despite some contradictory data points and contraction in the manufacturing sector, it will take a dramatic change of sentiment for indices to make fresh highs in 2016.

Commodity/ FX Outlook


In early trade last Monday crude rallied a full 1% after Saudi Arabia cut all diplomatic ties with Iran. Suddenly it looked as if geopolitical concerns would trump supply/demand fundamentals and possibly trigger a recovery in oil prices. A rebound in oil due to Middle Eastern hostilities would be bad for equities overall, but it would certainly help companies in the energy sector. The relentless 18-month sell-off in crude has done considerable damage to oil explorers, producers and the ancillary companies which service them.

But the rebound was short-lived. Brent and WTI ended last Monday’s trading session back in negative territory. Since then the sell-off has been relentless with both contracts trading back at levels last seen around 12 years ago when oil was in the early stages of a move which ultimately took it above $140 per barrel in the summer of 2008.  

At the end of last week crude put in another valiant attempt at a rally. The catalyst was China where the stock market stabilised after a torrid week which led to the triggering of two trading halts. Investors took heart after the China Securities Regulatory Commission announced that they were suspending their circuit-breaker rules. In addition, the People’s Bank of China raised its yuan guidance rate for the first time in nine days. But it is probably too early to call time on the bear market in oil, or commodities in general. China’s economic slowdown is real which means the country will be consuming less crude, even if it takes the opportunity of low prices to build inventory. Meanwhile, nothing has changed on the supply side with OPEC producing around 32 million barrels per day (well over their old production ceiling of 30 million) and no appreciable fall off in non-OPEC output so far. Of course, any deterioration in the fragile Middle Eastern situation could change everything. But so far that appears to be contained.


It was a better week for the two precious metals as they finally behaved as one would expect. That is to say that they acted as safe-havens as the problems with the Chinese equity market became apparent. This was good to see as over the last few years the price action in gold and silver has been sadly predicable if somewhat irrational. The two metals get sold aggressively when the dollar rallies, but make only modest and short-lived gains when the greenback reverses.

Gold rallied sharply over the course of last week, even as investors also piled back into dollars for protection. On Thursday and Friday it traded above $1,110 to hit its highest level since the beginning of November. Investors piled into gold and silver in reaction to the pandemonium in the Chinese stock market. Two complete trading halts were triggered after indices hit their 7% downside trading limits on Monday and Thursday. But on Thursday afternoon China’s stock market regulators removed the trading limits and the PBOC fixed the yuan higher for the first time in ten sessions. The Shanghai Composite ended higher on Friday morning restoring some order to the market. In response, gold and silver ceded some of their gains. Yet both remain in better shape than they were at the end of last year, and there’s always the possibility that last week’s moves may have retriggered investor interest. Gold now needs to consolidate above $1,080/85 in order to push higher. Otherwise a move back towards $1,050 can’t be ruled out.

As far as silver is concerned it was good to see the metal make gains even as copper hit fresh multi-year lows. This could indicate that silver is once again acting as an investment rather than purely an industrial metal. If it can hold above $14 on a closing basis then it could make further gains. However, gold tends to be the first precious metal that investors buy as a safe-haven. Then silver demand picks up rapidly once gold begins to look expensive.


FX trade was subdued in the lead-up to the Christmas and New Year break, with the headline EURUSD currency pair trapped in a relatively narrow range. But this was the calm before the storm as last week saw some dramatic currency moves thanks to the turmoil in China.

The initial Chinese stock market sell-off was triggered by weak manufacturing data, a succession of lower fixes for the yuan against the US dollar and fears ahead of the expiration of a ban on large shareholders selling stock. There were also some geopolitical worries after Saudi Arabia broke off diplomatic ties with Iran following a controversial execution of a Shi’ite cleric and the torching of the Saudi embassy in Tehran. But all this was compounded by the imposition of an all-day trading halt once the Chinese market fell 7%. This caused near-panic, despite the People’s Bank of China injecting 130 billion yuan ($20 billion) in to the banking system on Tuesday.

The Aussie dollar sold off sharply on the news while the Japanese yen soared on safe-haven demand. Investors tend to sell (borrow) the yen when risk appetite is high due to low Japanese interest rates and the deep liquidity in the currency. So there was a rush to buy back yen as the Chinese stock market went into meltdown and the trading halts were triggered.

Amid all this confusion and uncertainty, the US dollar rallied sharply. The greenback is the ultimate “safe-haven.” It is the world’s reserve currency, it is freely traded, accepted just about anywhere, trusted (for now) and has unparalleled depth and liquidity. But it was on course to end the week lower against its major trading partner, the euro. This was due to some stability returning to the Chinese stock market, and the release of relatively dovish minutes from the FOMC’s December meeting. The minutes showed that the decision to hike rates by 25 basis points was unanimous. However, they also suggested that the FOMC would exercise caution over the pace of future increases and would keep a close eye on incoming data releases and the wider global economic situation. Investors interpreted this as meaning that the 100 basis point rate increases pencilled in for 2016 may be overly hawkish. So the possibility that the Fed may tighten at a slower pace led to a sell-off in the US dollar.

But it was “all change” again on Friday following the release of December non-Farm Payrolls. These came in well above the consensus expectation suggesting that the Fed would have no excuse to hold back from tightening further in the first quarter of this year. All in all, the situation in FX is confused and particularly volatile. Hopefully we’ll get some clarity over the next few days.

Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.


Posted by David Morrison

Category: Weekly Bulletin

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