The start to the year has been a disastrous one for investors as stock markets tumble, Chinese economic concerns are elevated and commodity prices plummet.
There has certainly been no shortage of negative stories for investors to respond to already this year: weaker than expected Chinese and US manufacturing data; geopolitical tensions between Saudi Arabia and Iran; North Korea’s nuclear test; plus the ongoing slide in crude oil and other commodities.
The developments in China dominated global financial markets in the first week of trading for 2016. The plunge in Chinese equities persisted with the key Shanghai Composite Index plunging 7% last Monday and Thursday before circuit breakers kicked in and trading was halted on each day. The People’s Bank of China devalued the Yuan in an attempt to prop up the markets, but had very little effect.
As a result, global equity markets were a sea of red last week, having their worst start to a new year’s trading in history, with the Dow down more than 6% and our All Ords down 4% (and below the 5,000 level).
Our Australian dollar also came under downward pressure, trading to a four-month low of USD0.6950 (compared to USD0.73 before Christmas).
Despite this “risk-off” tone, bond yields were surprisingly quiet (closing lower but not falling as much as expected) possibly due to the still thin holiday trading last week.