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.
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.
On Wednesday, the World Bank once again downgraded its global economic growth forecast for 2016. The downgrade resulted from the World Bank’s prediction of weak performance from major emerging market economies, like China and Brazil. The reduced performance of these economies will reduce overall performance of the global economy and perpetuate the sluggish improvement of more advanced economies such as the United States.
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.
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.
Economic data proved so weak at the beginning of 2016 that global markets fell and China halted stock trading. In China, the Caixin Purchasing Managers Index (PMI), released by Markit Economics, fell to 48.2 in December, down from 48.6 and indicating the tenth month in a row of a contraction in activity.
As trading begins in 2016, investors fret over the trends in oil and equities that dominated the last two years. U.S. equities ended 2015 with a 2.15 percent loss, as measured by the S&P 500 excluding dividends.
Both large cap stocks and small cap stocks underperformed the broader market, with the Dow Jones Industrial Average ending down 3.43 percent and the Russell 2000 losing 6.57 percent in 2015.
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.
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.
As 2015 winds to a close, economists examine the major trends in the American economy, noting a combination of deflationary effects that point to weak demand and possible volatility in the New Year.
The biggest story of 2015 was a continuation of the prior year’s biggest story: the falling price of oil. WTI futures fell to $35 at the end of December, recovering slightly but failing to breach $37 by the end of the year. Meanwhile, natural gas futures also fell to $2.22, reflecting a similar decline of over half its value from normal ranges seen in 2013 and 2014.
