Significant selling pressure marked the year’s first full week of trading as commodity losses and China’s sell off rattled investors. China’s government responded to last August’s crisis with a ban on large institutional stock sales that were set to expire on January 8, 2016. Smaller investors moved to sell ahead of the policy change, initiating a major drop that forced Chinese stock market regulators to unveil a new “circuit breaker” policy on January 4 that kicked in almost immediately to interrupt Monday trading. On Thursday, the market opened straight down, triggering a halt after 13 minutes of trading. Stocks plunged again after trading resumed, and the exchanges closed for the day 30 minutes after the opening. China abandoned the “circuit breaker” on Friday, instead announcing an extension of the sales ban which temporarily stabilized stock prices.
While China’s turmoil may provide endless fodder for financial media sources, the Chinese market is not worthy of the attention. In reality, China’s market is still underdeveloped, depending primarily on its housing assets and lacking the equities and individual investment access to seriously impact the U.S. markets beyond media-driven sentiment.
Crude oil slid below $34 a barrel, a level not seen in more than a decade. Saudi Arabia sold oil for less than $30 a barrel this week amid tensions with Iran and heightened conflict in the Middle East. Saudi Aramco, the country’s largest energy company, has announced the possibility of a public offering this year to secure its already daunting market presence. Copper and other industrial commodities also slid on the week.
In domestic economic news, 292,000 jobs were created in December and labor figures for October and November were revised higher. Unemployment claims have held at 5 percent since October, far surpassing analysts’ predictions. An error in the calculation of housing construction growth may require a downward revision of GDP growth for 2015. ISM Manufacturing Survey for December came in at 48.2, four-tenths below the November reading, while the Markit survey was 51.2, signaling expansion. The non-manufacturing ISM survey demonstrated clear expansion at 55.3.
The week’s events may have jostled investors’ nerves, but Fed officials are focused on jobs and inflation. Fed minutes reflected concerns over the market’s reaction to rate hikes, but strong continued jobs growth could quickly ignite inflation with a rebound in commodities. Friday’s jobs data also pushed up expectations of another rate hike.
China, emerging markets and commodities will remain on the front page to weigh on the market emotionally, but continued resilience in the U.S. economy may likely improve the longer term economic outlook.