Equity markets are starting the year with a heavy dose of risk aversion as events around the Globe over the New Year’s Weekend have investors and traders hitting the “WTF Button” to start the year.
Tensions in the Middle East have found a “trigger point” as Saudi Arabia has severed all diplomatic ties with Iran. Never the best of friends, the Saudis action comes following their embassy in Tehran being violently attacked on Sunday.
The Iranian government did little to halt the attack on the Saudi Embassy, which was apparently sparked by the death sentence execution of a Shiite cleric (along with 46 others) who had been convicted of terrorism in the Saudi Kingdom in the aftermath of the Arab Spring uprising in 2011.
In China, the Shanghai composite closed 7% lower as regulators were forced to institute recently approved circuit breakers to halt trading in both the Shanghai and Shenzhen(-8.2%) markets. The rate for the Chinese Yuan was set lower for the 5th consecutive session, breaking the Rmb6.5 per US$$ level for the first time since May 2011.
A Markit manufacturing survey declined for the 10th straight month, but lurking even more ominously is the imminent expiration of the 6 month ban on stock sales by significant shareholders that was put in place during the Chinese market turmoil last summer.
Oil started the day with a 3% gain in response to the flare up between the Saudis and Iran, however by the time the Asian markets closed those gains had evaporated. Much has been written of late on the record short interest in the oil futures market and what it would take to inspire a meaningful rally toward even the $50 level.
Certainly a sustained conflict among oil producing nations in the Middle East is a potential catalyst, but this have to consist much more than harsh words between 2 eternal haters.
So Much For Forecasting 2016
At least we’ll start the year with a much less complacent tone that permeated markets, sans oil, the last 6 weeks of 2015. I’ve always found a sharp jolt to consensus play book produces a healthy refocus on what really matters, as opposed to the non stop discussion the last 2 weeks on whether we’d finish 2015 pull or minus 2%.
In the immediate term we’ve got to look at technical support for the S&P500 of 2020 and below that 1994. Maybe a good hard flush to start the year is better than drip….drip….drip.