If today’s activity in Chinese equity markets is an indication of the year ahead then we are likely set for a bumpy 2016. The Shanghai Composite triggered the circuit breaker with a sell off of 7% in the wake of a weaker than expected manufacturing report and now stays closed till tomorrow. The Caixan PMI came in at 48.2 vs 48.9 expected. The rush to safe havens has seen gold prices rise and the USDJPY fall speedily below the 120 level while equity markets have been toppled with European indices shedding an average of 2.5-3% in early trade.
Spanish manufacturing posted a reading of 53 for the month, pretty much in line with expectations with stronger business conditions but margin employment growth. Germany saw its economic upturn continue last month with its manufacturing PMI up at 53.2. The single currency has been bolstered and now trades at 1.0919, off its earlier highs but still up 0.57% against the greenback.
The German Dax having gapped lower at the open is off the lows but will likely remain capped by the 10485/10500 levels in the near term.
A mere 3 stocks in the green on the UK benchmark one of which is Randgold Resources up 1.35% on the back of higher gold prices in a risk off environment. Other resource companies are, as was habitual last year, languishing near the bottom of the benchmark with Anglo American off 7.65% and Glencore down 6.5%. Copper prices, despite staging a small recovery in the latter part of December have again fallen back by 3% and may well test the basic support levels of $2/lb in the near term. Iron ore is also under the cosh, down almost 1% intraday.
Any idea that the situation between Iran and Saudi Arabia could provide a risk premium boost to oil prices has been quickly retired with WTI below $37/bbl and trending lower. BP plc has fallen 2% while Shell has given up almost 1% in early trade.
This week brings with it the first of the US non-farm payrolls so the usual speculation on when we can expect another FOMC rate hike will likely be the theme.
We call the Dow 237 points lower to 17190.