The worst beginning of the year in history - Markets - Discussion.biz
It turned out that they were rightly disturbing. The beginning of the year was very bad on the stock exchanges. We often talk about the "January effect", when funds fill their wallets - this time we could talk (for now) about the January deficit. Americans say it was the worst first week of the year in Wall Street history - the S&P 500 lost 5.92%.
Theoretically (statistics), the first trading week in a given year may show the direction the indices will go in the rest of the year. The data published by the WSJ Market Data Group show that for the S&P 500 index, 68% of the first five trading days showed what will happen throughout the year. However, there is also a "but". The prognostic value is much greater when the year is "bullish". For the declining year, the probability that the first week shows the direction is high (this adjective is obviously a joke) ... and amounts to 50%, so it has practically no prognostic significance.
The plague came from China. Already on Monday, January 4, the weak PMI reading for the manufacturing sector in China and quite weak ISM index for manufacturing in the US hurt the stock markets fundamentally. It was also not good in geopolitics. Tensions between Iran and Saudi Arabia increased sharply after the burning of the Saudi Arabian embassy in Tehran. Nor did she like the North Korean hydrogen bomb test (apparently it wasn't a real test).
In China, there was a repeat of August. Most commentators focus on the huge drops in the Shanghai Composite index on Monday 4 January and Thursday 7 January. At that time, trade was suspended after the index dropped by over 7%. Thursday was spectacular when only 29 minutes were traded - that was enough to activate the brake. On Friday, August 8, the authorities suspended the rule. It was said that such a restriction might have increased the supply pressure as players feared they might not be able to sell before the trade was suspended. The index did rebound, but on Monday 11.01 it dived again.
I have been saying for a long time that the Chinese stock market (for many reasons) is not really important to the world. The important thing is whether the Chinese economy is facing a hard landing, i.e. a real crisis, whether the Chinese authorities are entering the game as a participant in the currency war (very dangerous for the world of finance and other countries' economies) and, finally, whether the Chinese government knows what it is doing or is in control of the situation . And the latter is the most important thing.
For example, the depreciation of the yuan can be disastrous. The market weakened it in the first trading week of January by 2.5%, and since November 2015 the yuan has lost 6.5% (until January 6). Few? For now, yes, but if you remember about the colossal dollar debt of Chinese companies, the weakening of the yuan can have a domino effect - everyone will want to pay off their loans in dollars, which will lead to an unimaginable weakening of the yuan.
The government and the bank would not have been able to stop this with $ 3.5 trillion in reserves. No wonder the government and LBCH intervened again and the yuan gained two percent from January 7th. However, such interventions can end badly. Last year, China lost 12% of its foreign exchange reserves (nearly $ 500 billion) defending the stock market and trying to stop the yuan from depreciating too quickly. Now the authorities are doing exactly the same. How long will China have enough reserves? And this is what investors in the global markets were afraid of, and not the declines of the Shanghai Composite index (still higher than in August last year).
In the stock markets, the situation until January 12 (I am writing during very upward sessions) was disappointing. Indices in Europe were losing particularly strongly. Of course, the WSE was also losing a lot, but it is worth noting that the Hungarian BUX was a mainstay of peace (it even gained slightly in this terrible week for the stock exchanges). For a long time, the declines of Wall Street indices were clearly smaller than on European stock exchanges, but on Thursday, January 7, the American bulls could not hold out. This time also the S&P 500 lost nearly 2.5% and the NASDAQ 3%. The situation in Europe was similar.
The currency market was also nervous, but definitely less nervous than in the stock markets. In Poland, the appreciation of the zloty at the end of 2015 (evidently the issue of currency debt valuation played a major role in the shallow market) ended at the beginning of 2016. The EUR / PLN and USD / PLN exchange rates immediately returned to the 2015 highs, and the CHF / PLN too clearly increased. To a large extent, the depreciation of the zloty resulted from the flight of capital from developing markets, but our currency was still one of the weaker ones in this group.
In the raw materials market, the fear for the fate of the Chinese economy led to a sell-off of oil and copper. The sell-off of crude oil (the new 11-year low) hurt the stock exchange indices. It was also losing copper - it broke the bottom of 2015. Gold did particularly well in the Chinese turmoil, with the ounce price back above its key level of $ 1,100. Raw materials are still in a strong bear market.
Now let's move on to what may happen in the near future. In the near future, because I do not dare to make forecasts for 2016. One thing is for sure - there will be tremendous volatility, which means it will be a paradise for short-term players. I also do not dare to say that the beginning of the year promises huge discounts during it. It does not have to be that way, although the situation seems to be tightening up.
It is enough to look at the chart of the S&P 500 index to see that for many years (yes, years) it has specialized in drawing supposedly rare V-patterns. Big drops are followed by even bigger increases, not necessarily in wave patterns. I do not rule out that it will be so now. One thing seems to be certain - it would be dangerous for the bulls to break the S&P 500 level of 1,865 points. Then the index would draw a double top pattern, which would give a signal to start a correction of the entire six-year bull market.
However, the coming days may prove to be favorable for the stock market. On Monday, January 11, after the session, Alcoa published the quarterly report, which started the season of publishing quarterly reports of companies. Such a period and the old game of "poor forecasts, better results" most often help the bulls.
In addition, important data will be released in China on Tuesday, January 19th. We will find out how much GDP increased in China in the fourth quarter and how industrial production and retail sales performed there in December. Better-than-expected data will certainly help in the correction of the upward trend. Poor data will hurt her for a day.
There is another factor. On Thursday, January 21, the meeting will have the ECB, which may help the bulls, because changes in the parameters of the monetary policy should not be expected, but Mario Draghi, the president of the ECB, will certainly try to help the markets during his press conference. If the bulls do not use all of this, it will have to come to terms with the end of the bull market.
In Poland, the excessive activity of politicians is a risk factor for the WSE. Recently, Treasury Minister Dawid Jackiewicz stated that the Ministry of the Treasury is analyzing the possibility of merging PKN Orlen, Lotos and PGNiG. PGNiG and Lotos shares went down, and PKN Orlen went up. We also learned that PKO BP and PZU could help rescue mines, and this overestimated PKO BP's shares.
On the other hand, the banking sector could be helped by the statements of Deputy Prime Minister Mateusz Morawiecki, who wants the aid for frankers to be limited only to those who have the greatest difficulties - a move in the right direction, but you need to know the details to be able to really evaluate it. One thing is for sure - politicians should talk less. Openness is good, but not for the stock market if it creates uncertainty. However, if there is a serious rebound in the world that started on Tuesday, January 12, I believe that our market will also take advantage of it this time.
