Market Perspective for January 4, 2016

The first day of 2016 trading disappointed investors as a major selloff in Asia spread into Europe, resulting in a low opening in the U.S. market on Monday morning. The Chinese government is expected this week to lift selling restrictions on major institutions that have been in effect since the August crash. Traders, anticipating fallout from the expiration of these restrictions, jumped the gun and sent the Chinese markets down 7 percent in just fifteen minutes and halted trading for the day. The Chinese yuan also fell on Monday, sending emerging market currencies lower.

Economic data could potentially sway sentiment and detract from the week’s rocky start. In Europe, the manufacturing PMI climbed to 53.2. The U.S. ISM Manufacturing Index and Markit PMI for December will also be released later today. Analysts forecast a rise in both indexes. December auto sales will be an important data point this week, but the main event will be Friday’s unemployment figure for December and the first labor report since December’s rate hike. Economists are looking for around 200,000 new jobs and an unemployment rate of 5.0 percent. Positive data would go a long way to bolster confidence in the economy and reinforce the Fed’s decision to raise interest rates.

Earnings data has begun to trickle in a few weeks ahead of the official start of the season. On Wednesday, agrichemical giant Monsanto is expected to report as much as a $0.33 per share loss for the first quarter. Walgreens (WAG), the country’s largest drugstore operator, anticipates strong sales and earnings growth. KB Home (KBH) is similarly forecast to report solid results, which would promote optimism for the housing sector. Bed Bath and Beyond (BBBY), which fell more than 30 percent in 2015 amid a tough retail environment, will report earnings on Thursday.

The Consumer Electronics Show in Las Vegas is underway this week and will include interviews and appearances by executives from Intel (INTC), International Business Machines (IBM) and Netflix (NFLX). Positive news from the trade show can have a bullish impact on related technology shares.

Crude oil prices opened the week with a rally. U.S. production is expected to tumble in 2016 after shale oil producers defied gravity in 2015 by countering well shutdowns with additional pumping from their remaining wells. The Energy Information Administration expects production to fall nearly 600,000 barrels per day. Escalating tensions between Saudi Arabia and Iran may have triggered Monday’s rally.

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