Economic Conditions

Finding Your Market Sea Legs

Investors still have not found solid footing this year.  Equity markets have continued to sink, even though China's equities advanced.  Bond markets are mostly firmer, with the US 10-year yield seemingly being drawn back toward 2.0%.  Oil prices are little changed, after Brent slipped to marginal new lows.   There is much talk about the Iranian sanctions being lifted as early as Monday.

The US dollar itself is mixed.  The yuan weakened about 0.25%.  The renewed pressure so new widening of the onshore and offshore yuan.

China's Funky Trade Balance Math

Many of the capital markets are enjoying reversals today.  Equity markets are mostly higher. The MSCI Emerging Market equity index is up more than 1%. Several key commodities, like oil and copper, are firmer.  Bond markets, outside the US, are firmer, with the Japan's 10-year yield slipping to new record lows slightly below 20 bp.

Sentiment Remains Fragile

Chinese shares continued last week's plunge, with the Shanghai Composite off 5.3% and the Shenzhen Composite falling 6.6%.  Both indices closed on their lows.  With the apparent help of officials, the onshore yuan strengthened, though the real squeeze was in the offshore yuan, which strengthened by nearly 1%, the most in four months. 

Last Week's Market Mess Carryover

A tumultuous start of the year saw the US dollar turn in a mixed performance.  Emerging market currencies and the dollar-bloc softened.  Sterling was in this camp, losing about 1.2% against the dollar.  On the other hand, the euro, Swiss franc, and the yen were firmer.

Market positioning, the unwinding of short funding currencies and long risk assets, seemed to account for the disparate price action.  The pace of the slide in Chinese stocks and yuan, and the continued fall in oil prices rather than monetary policy considerations per se were the key drivers.

Jobs Up, Stocks Up, Bonds Down

US grew nearly 300k jobs in December.  The October and November jobs growth revised up by 50k.  The unemployment rate was unchanged at 5.0%, even though the participation rate ticked up.  If there was a disappointment it was that hourly earnings did not rise as much as expected.  The 2.5% year-over-year growth from 2.3% in November.  The market had expected a 2.7% pace.  Still it is the upper end of the cycle.

U.S. Jobs Data, Sure, but There is So Much More

For the first time this week, the PBOC set higher central reference rate for the yuan and Chinese shares rallied, with the apparent assistance of officials, after abandoning the circuit breakers.  This, coupled with somewhat firmer oil prices, is helping to facilitate some semblance of stability in the global capital markets. 

One Shouldn't Blame China for Everything

One might be forgiven for believing that nail-baiting start to the year is all China's fault.  It has repeatedly for eight sessions fixed the yuan lower, including earlier today, at a seemingly accelerating pace.  The new circuit breakers, introduced on Monday, appear to be adding to the volatility.  Chinese share trading was stopped today after the first hour with the CSI 300 off 7%.  It appears that the central bank through its agents intervened in the offshore (CNH) market.

Markets Watch and React to China and the PBOC

The US dollar and Japanese yen have begun the year on a firm note, as have bonds, while equities markets have moved lower.  This continues unabated today.  Another consistency is the weakness in the Chinese yuan.  The PBOC fixed the yuan lower for the seventh consecutive session.

China Sneezed

The markets are in turmoil.  Global equity markets are sharply lower, dragging bond yields down.  The risk-off move has propelled the yen sharply higher.  Its 1.4% advance has seen the dollar slump to JPY118.70, its lowest level since mid-October. 

So We Begin Again

The US dollar firmed against nearly all the major currencies in the last week of 2015.  The exceptions were the Antipodean currencies and the Japanese yen. The relatively high short-term yields offered Australia, and New Zealand may have attracted some hot flows looking park over the turn.  The yen's gains were all scored on New Year's Eve in thin turnover, as equity markets and US yields slipped lower.