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2016 starts off with a bang

Left over New Year’s Eve fireworks ensure 2016 sets off with a bang as equities panic on Chinese volatility.

Chinese trader watching data boards
Source: Bloomberg

Anyone hitting the trading floor expecting a calm and quiet start to 2016 was given a rude surprise as Asian chaos affected European markets. Worries over China’s ability to keep up its pace of economic growth have been hit with an early warning sign as the Caixin PMI data came in weaker than expected, and stretched the contraction in China to ten months. This swift return to the 2015 template of worrying about China looks to have been the trigger for the selloff in Chinese equities. It is the first time Chinese regulators have activated the suspension in trading as a circuit breaker safety measure.

Starting the year off by suspending trading an hour and a half early on the back of a 7% fall has set an ugly precedent for the year ahead. Tensions in the Middle East have escalated again as the relationship between Saudi Arabia and Iran is being stretched to breaking point. Considering the prominence both nations take as far as global oil supply is concerned, the subsequent spike in oil prices is, if anything, a little on the mild side.

Once again the mining sector – with its reliance on Asian consumption – has knocked the FTSE with both Anglo American and Glencore taking prominent roles. Speculation that Shire has upped its budget for the acquisition of Baxalta by as much as $2 billion has seen a flurry of renewed interest in the pharmaceutical sector. Having seen the ability of the mining sector companies to maintain their dividend yields finally buckle at the tail end of last year, this weekend’s comments from BP chairman Bob Dudley will have many wondering if oil firms might be the next to struggle.

Ahead of the open we expect the Dow Jones to start 238 points lower, at 17,187.

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