The first trading session of the new 2016 proved the worst since 1932. The first four trading sessions in the US were the worst on record – or 119 years. Increased fears of cooling of the Chinese economy after the publication of weak statistics on business activity in industry and services of the Chinese People’s Republic provoked a collapse of stock markets in China and started a domino effect on the world markets. The decline in oil prices to new lows of April 2004 and the nuclear threat from North Korea have intensified the movement of capital to risk assets in the assets of a “safe harbor“. Positive US statistics pointed to the availability of opportunities for the Fed rate hike.
US indexes were down for the week by more than 6%, such as Dow Jones fell 6.3%. NASDAQ 7.1%. Asian markets HSI collapses to the August lows and closed near the elevation data lost 7.9%, the Japanese Nikkei gone down by 8%. In the European region, Britain‘s FTSE fell to the lows of 2015, losing 6%, was more aggressive reduction DAX – 8,9%.
In the financial markets under the pressure of oil, metals and under the influence of the yuan devalued currency commodity-dependent countries showed a decrease. Currency pair USD / NOK + 0,8%, to multi-year highs USD / CAD (+ 2,2%). Instability in China generates flows in Japanese yen, the USD / JPY pair dropped to 2.3%.
Gold (XAU / USD) due to geopolitical risks due to North Korea’s nuclear threat has received a new impetus to growth, rising 4.1%, but the silver (XAG / USD) in the movement did not participate 0.9%. On the Chinese fear the price of copper (HG) has updated the minimum, losing 5.6% for the week. China and Saudi Arabia, price dumping in the European market of oil has led to the renewal of 11 year lows of oil brand Brent, which is a week decreased by 11.3%.
Chart of the week:
The economic data of the last week:
- Monday. China December index of business activity in the manufacturing sector, 48.2 against expectations of 48.9
- Monday. Eurozone: December index of business activity in the manufacturing sector, 53.2 against expectations of 53.1
- Monday. US: December index of business activity in the manufacturing sector, 51.2 against expectations of 51.1
- Wednesday. China December index of business activity in the services sector, 50.2 against expectations of 52.3
- Wednesday. Eurozone: December index of business activity in the services sector, 54.2 against expectations of 53.9
- Wednesday. US: December index of business activity in the services sector, 54.3 against expectations of 55.1
- Thursday. Eurozone: November retail sales -0.3% -0.2% against expectations
- Friday. US: December The number of jobs outside the agricultural sector of the USA, 292 thousand against the expected 203 thousand.
Forecast for the week on January 11-15
Beginning of the year turned out to be overly pessimistic. Investors are likely to be depressed, the guru of the market and leading investment banks say about the transition probability of the market in a bearish phase. Dzhors Soros said that the current situation in the markets of the world is similar to that observed in 2008. Billionaire financier analyst Marc Faber expects the decline of the market by 20-40% due to China. Analysts at UBS indicated highly probable entrance of the US stock market in a bearish cycle in 2016 and the potential drawdown of S & P500 by 20-30%. Goldman Sachs analysts on Thursday lowered its forecast of earnings per share (EPS) for the S & P500 in the $ 3 to $ 106, $ 117 and $ 126 for the 2015, 2016 and 2017, reflecting the negative attitude of bankers.
The persistent weakening of the Chinese Yuan leads to the strengthening of fears of capital flight from China. On Friday, the Financial Times reported that the Chinese authorities gave an oral order to restrict the sale of US dollars to companies and individuals, which may indicate a critical situation. Chinese central bank actions do not bring the proper fruits of the country’s economy continues to slow, involving a whirlpool neighboring countries. According to the National Bank of China in 2015, the international reserves of the country decreased by $ 512.66 billion, the biggest decline in history. At the same time, in December last year, the Chinese currency reserves decreased by $ 107.9 billion, which was a record in the history of decline over the last month. As a result, by the end of the year in the reserves of the country was $ 3.33 trillion.
Complementing the overall anxiety uncertainty about the Fed‘s actions to further improve the rate. In particular, the vice-chairman of the US Federal Reserve, Stanley Fischer expects 4 Round Fed rate hike this year, which corresponds to the assumptions of the Fed.
Monday January 11 starts earnings season for the fourth quarter of 2015 and the entire 2015 calendar year. Traditionally the season opens aluminum giant ALCOA (AA), a report which will be published after the close of trading on Monday. At the end of the company measures the state of the global industry, as aluminum is used in almost all industrial areas. Despite the fall in the value of aluminum in the world markets in the 4th quarter by 6.5% compared to the 3rd quarter, the company’s shares may receive significant support from the account in the financial results of contracts with Ford (F) and Airbus more than $ 1 billion, as well as possible long-term contract with Lockheed Martin for $ 1.1 billion.
Also, in the week prior to the opening of trading on Thursday will publish a report JP Morgan (JPM), and after bidding Intel (INTC). On Friday, before the opening of trading will be published financial results of Citigroup (C).
World stock indices since entering the reporting season will be volatile. The high oversold levels will act as a deterrent, but the rebound, investors will be considered as a possibility to close long positions. Dow Jones (YM) can head to the area of 16000, while the resistance will be the level of 17,000 from the possibility of renewed sales. For the Nasdaq (NQ) support is at 4110, resistance at 4450.00.
Commodity and raw market
Oil prices are at the lowest level since April 2004, threatening large-scale crisis in the industry, reducing the investment in exploration and drilling, as well as limiting the opportunities to work with loan funds. Venezuela and Nigeria are on the verge of default. Currency of Petroleum Exporting Countries are under massive pressure, which leads to dissatisfaction market participants. At the same time, the devaluation of local currencies to become the only opportunity to survive and compete. Cost of the traditional production at the company level is in the range $ 20-36. For many companies, critical current prices. More critical current prices for oil shale extraction. For countries, the level of oil prices for a balanced budget is above $ 40.
The oil market is in the area of speculation, expectations and tough struggle for the narrowing demand. In anticipation of Iran’s proposal on the oil market, Saudi Arabia has reduced prices for consumers in oil prices for Europe at $ 0.2-0.6 per barrel. This price reduction is at odds with the European market trends, where Russia has increased selling prices for its crude oil Urals. In turn, the latest data on oil and petroleum products in the United States reported a decline of oil reserves, but recorded an increase in stocks of gasoline and distillates, which brought supplies in Cushing terminal to new records. If we add to the general trends sprawling fears of a hard landing in China, as the largest consumer and the risks for India can be expected to remain turbulent prices.
As a result, the price of Brent crude oil remained under pressure with the nearest support at around $ 30-31, and resistance at $ 36.3 and, in the case of which it is possible to overcome the rapid movement into the zone of $ 42.3. But for such a significant movement needed drivers, or a change in market sentiment with respect to China and start a new large-scale incentive programs.
The overall uncertainty in the markets, the growing turbulence and pessimism bidders geopolitical risks stimulate interest in gold as a safe haven asset. After a prolonged correction of the yellow metal, and accumulated oversold, there is potential for movement in the area of $ 1130 and further up.
This week the focus of Statistics of China and the United States. This statistics of the two countries are now determines the fate of the movement of capital. US macro data will be considered in the light of further steps the Fed to raise interest rates, in turn, data on China‘s health indicators will be China and its response to the actions of the authorities – the devaluation of the yuan and point steps to stimulate the economy. Published on Wednesday data on China‘s trade surplus acts leading indicator of industry activity of the country. Therefore, the publication of weak data of China will lead to additional pressure on raw materials and commodity currency countries. Thus, we have the opportunity to continue the growth of the pair USD / CAD and reduced steam AUD / USD.
In turn, the US dollar received further support from the expectations of the Fed‘s intentions to carry out conservation further rate increase. Published on Friday, January 8 data to create jobs outside of agriculture were much better than expected (292 thousand against 203 thousand.), Which supports investors in this thought. This week the focus of the US statistics on retail sales, which can send the EUR / USD pair in the 1,065 zone.
Warning: Profitability in the past does not mean profitability in the future. Any projections are for information only and does not guarantee a result.