Just a few thoughts on another shocker of a morning ......

Thursday 7th January 2016

Just a few thoughts on another shocker of a morning ......

ref :-  General

We're only a week into the New Year and already that first glimpse of the financial news in the morning is becoming something of an ordeal. The growing fears concerning the extent and pace of the Chinese economic slowdown gained even more traction when the PBoC seemingly signalled its own concerns with yet another weak daily fix for the Yuan ( USD / CNY currently 6.59). The Shanghai Composite opened for a grand total of 29 minutes before closing 7% lower, "limit down". The carnage has duly spilled over into European stocks, and into US equity futures. Oil has traded below $33 this morning (both Brent and WTI) and together with the beleaguered industrial metal markets is giving a clear indication of how players in that sector are viewing likely growth prospects. (N.B. WATCH OUT FOR OFFICIAL CHINESE Q4 GDP DATA ON JAN 19TH). To be frank, it's a bit of a bloodbath.

So, where to take refuge amidst all the doom and gloom ?  The most popular "safe havens" of the moment :

JAP YEN : Along with the Swiss Franc, as a liquid and highly tradeable currency the Yen has long enjoyed safe haven status. It benefits from having much of its own debt in domestic hands, and is gaining more support as perceptions increase that Japan's monetary process may be at an end. USD / JY trading below 118.00, down from 123.00 on Dec 18th.

GOLD : Has traded above $1100 this morning, a rise of about $50 from recent lows. Historically, gold has been the classic safe haven but its performance on that front recently has been disappointing with rallies tending to be short-lived. The jury is out as to whether this will be any different without market turmoil becoming market crash. Currently trading about $1097 and technically will need to break resistance above $1103. Gold's inherent value has obvious attractions but the disinflationary implications of what's going on just now will not help.

US TREASURIES :  Actually also German Bunds, UK Gilts etc. Even with the relatively minimal yields currently available, the security offered by mature sovereign debt will always make it a home in times of trouble. US Treasuries are particularly interesting ..... On Dec 16th, before the Fed put UP rates by 25 basis points, the yield on the 10yr Treasury Note traded as high 2.29% . The yield now ? 2.15% .....

And on that note, did the release of the minutes of the FOMC meeting that finally took the plunge to raise rates reveal anything of interest ? We knew the vote was unanimous, but beyond that there was plainly a difference of emphasis between the committee members, between the "hawkish" hikers and the "doveish" hikers, if you like. The doves certainly voiced their concerns regarding inflationary pressures, or rather the lack of them. In the light of recent events, those concerns look even more valid now. The question was even asked on Bloomberg this morning : If the Fed was making its decision this month rather than last month, would the outcome have been the same ?

Fed Vice Chairman Stanley Fischer last night acknowledged that the global headwinds looked a bit stronger than they did a few weeks ago but continued to toe the party line that the US economy, which after all is the Fed's prime concern, remains in robust shape and on course for rate cuts totalling 1.00% this year. The markets obviously do not agree. They take the view that it would be a brave man who thought that US economic performance and inflation will remain unaffected by what threatens to take place in the wider world ...... yup, let's call it "brave" for now .....