IronFX Daily Commentary by Sakis Paraskevov | 08/01/2016
January 8, 2016 9:19 am
• China suspends stock market circuit-breaker • Effective from today, China will suspend its stock market circuit-breaker mechanism, after it was activated twice this week. • The circuit-breakers were designed to ‘protect investors and reduce volatility’, but many argue they instead had the opposite effects. The 7% breaker had a ‘magnet effect’ where as prices fell towards that level, investors tried to sell and get out before the break, which accelerated the decline even further. The market reacted positively on the news, with the Shanghai Composite up approximately 3% in early trading today. • In an attempt to calm currency markets, the PBoC fixed the yuan’s daily midpoint rate at a higher level on Friday. Following the fixing, both AUD and NZD surged. However, we would be cautious for any further upside moves, due to the overall uncertain environment. • The main event of the day: US employment report for December • The forecast is for an increase in payrolls of 200k vs 211k previously, for the unemployment rate to remain unchanged at 5% and for the average hourly earnings to grow at the same pace as November. • Although an unreliable predictor of NFP, the ADP report on Wednesday exceeded expectations by 65k, which increases the probability of a positive surprise in the NFP figure as well. • In the minutes of the December FOMC meeting, all members judged that employment could improve further this year. As such, another solid employment report will be in line with the Fed officials’ view and may support the dollar. • Today: • France, Germany, Sweden & Norway: Industrial production data from each country, all for November. • Germany & UK: Trade balance data from the two countries, both for November. • Canada: The unemployment rate for December is expected to have remained unchanged. However, with falling oil prices, we could see declining revenues and investment in the country’s energy sector to start weighing on employment, at least in oil-intensive regions. • Speakers: San Francisco Fed President John Williams and Richmond Fed President Jeffrey Lacker speak.
• China suspends stock market circuit-breaker
• Effective from today, China will suspend its stock market circuit-breaker mechanism, after it was activated twice this week.
• The circuit-breakers were designed to ‘protect investors and reduce volatility’, but many argue they instead had the opposite effects. The 7% breaker had a ‘magnet effect’ where as prices fell towards that level, investors tried to sell and get out before the break, which accelerated the decline even further. The market reacted positively on the news, with the Shanghai Composite up approximately 3% in early trading today.
• In an attempt to calm currency markets, the PBoC fixed the yuan’s daily midpoint rate at a higher level on Friday. Following the fixing, both AUD and NZD surged. However, we would be cautious for any further upside moves, due to the overall uncertain environment.
• The main event of the day: US employment report for December
• The forecast is for an increase in payrolls of 200k vs 211k previously, for the unemployment rate to remain unchanged at 5% and for the average hourly earnings to grow at the same pace as November.
• Although an unreliable predictor of NFP, the ADP report on Wednesday exceeded expectations by 65k, which increases the probability of a positive surprise in the NFP figure as well.
• In the minutes of the December FOMC meeting, all members judged that employment could improve further this year. As such, another solid employment report will be in line with the Fed officials’ view and may support the dollar.
• Today:
• France, Germany, Sweden & Norway: Industrial production data from each country, all for November.
• Germany & UK: Trade balance data from the two countries, both for November.
• Canada: The unemployment rate for December is expected to have remained unchanged. However, with falling oil prices, we could see declining revenues and investment in the country’s energy sector to start weighing on employment, at least in oil-intensive regions.
• Speakers: San Francisco Fed President John Williams and Richmond Fed President Jeffrey Lacker speak.
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