Calm descends for now

Markets bounce on calmer Chinese markets.

Chinese traders watching data board
Source: Bloomberg

The decision by Chinese regulators to dispense with their circuit breaker system has proven to be the correct one as the Asian traders have clawed back just over 2% of the week’s losses. Human psychology has had a strong hand to play in the way Chinese markets have behaved. The removal of the system that suspends the market should it fall too much has, ironically, seen the fear of entrapment reduced with Asian investors. Considering this change in tactic and the normal improvement in equity volumes in the second week of the year we might be entitled to be a little bit more optimistic about next week. The absence of a doomsday scenario in Asia has enabled European equity markets to replicate  the Asian bounce as a calmer sense of fair value has seen the bulls come back into the market.

Iranian oil officials have added to the pressure on the black gold with comments stating they can envisage prices falling below $30 a barrel. Following a week’s worth of tit for tat verbal jousting between Saudi Arabia and Iran these predictions look increasingly realistic. Even if current speculation that Saudi state-owned oil company Armco doesn’t come to market, it highlights how serious the pain from reduced revenues must be that they are even considering it. One commodity that has found support this week has been gold, making its first move back above $1100 since early November – how long this flight to security trade looks attractive is less certain.

The first Friday of the month normally ensures the lion’s share of market attention is focused on the non-farm payrolls figures coming out of the US. Today, however, looks to be the exception to that rule. Expectations are for a figure just north of 200,000 but with the US having already started increasing interest rates in 2015, its star has been somewhat dimmed. Ahead of the open we expect the Dow Jones to start 197 points higher, at 16,711.

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