For Markets, A Bad Start To The Year

“As they’re the world’s two biggest economies and the impact is huge, each new data point is keeping stock markets in suspense”, Toshihiko Matsuno, chief strategist at SMBC Friend Securities, told Bloomberg News. The drop in Chinese stocks followed a business survey that suggested manufacturing activity in China contracted for the 10th successive month in December and at a faster pace than the previous month.

It was the first time a new “circuit breaker” system – created to curb volatility in Chinese stock markets – was triggered, with trading ending 90 minutes earlier than the usual close.

Chinese authorities have been trying for months to restore confidence in the country’s stocks after a plunge in June rattled global markets and prompted a panicked, multibillion-dollar government intervention. “Thankfully, the first day of trading for the year has no predictive power for the rest of the year”. It was one of the better-performing industries in the market past year.

Markets across Asia were stung by the data, as well as news that Saudi Arabia had severed diplomatic ties with its old foe Iran on Sunday after protesters ransacked its embassy in Tehran following the execution of a Shiite cleric.

Shares in Shanghai.SSEC veered either side of flat and were last up 0.2 percent. “There will be heavy selling in the near future”, said Huang.

The Chinese stocks that most US and other foreign investors own directly or through mutual funds trade instead in Hong Kong.

The Australian sharemarket fell deep into the red as it caught up to the global equity markets reeling from the 7 per cent plunge in Chinese stocks yesterday.

Adding to investors’ concerns were new tensions in the Middle East that could threaten oil supplies.

Declining issues outnumbered advancing ones on the NYSE by 2,269 to 819, for a 2.77-to-1 ratio on the downside; on the Nasdaq, 2,251 issues fell and 598 advanced for a 3.76-to-1 ratio favoring decliners. The stock market did as well, with the Dow Jones plunging 276 points by the end of the first day of trading of 2016.

The S&P 500 lost 1.5% and the Nasdaq dropped 2.1%.

With a population of more than 1.3 billion, it’s no surprise China is the giant of the Asia Pacific region, but increasingly, it’s a population that has looked to Australia for everything from its milk products to a tourism destination (it’s Australia’s largest global market), not to mention it being Australia’s largest export market and our largest two-way trade partner.

In the United States, the iShares China large-cap ETF fell 3.2 per cent, its biggest single-day slide since September.

Brent LCOc1 for February delivery was quoted 29 cents firmer at $37.51 a barrel, while US crude added 27 cents to $37.03. “Today, in regards tot he Australian dollar, people might have calmed down a bit and kept in mind it’s just one day of trading”.

He said lower input prices has not been reflected in retail or restaurant sales because the consumer has chosen to save the dividend from lower gas prices.

Shane Solly, portfolio manager at Harbour Asset Management, said a roughly 1 per cent fall in the benchmark index was “probably about right” given the events in overseas markets. The yield on the 10-year Treasury note fell to 2.23 percent from 2.27 percent.