Asian events drive markets lower

Further weakness in Chinese data offers Europe plenty to digest.

Shanghai, China
Source: Bloomberg

China’s manufacturing PMI has now been in contraction for ten months and the overnight services PMI data suggests it will not be too long before this too starts to shrink. Only three days into the new year and both the economic data and equity markets in China are giving investors plenty to worry about.

The PBoC has already suspended equity markets, closing them early for the day, injected 130 billion yuan into the markets and has now weakened the currency. What will the fourth day of the trading year bring?

The escalation in rhetoric between Saudi Arabia and Iran has already heightened fears over the Middle East and now North Korea has decided this is the optimum time to carry out its  latest nuclear bomb test. If 2016 is going to be a good one for equities, they are going to have to do it the hard way.

Yesterday’s price action in Home Retail Group was excitable to say the least following the revelations that it has turned down an advance from Sainsbury. 24 hours on and with calmer analysis the shares are down over 4% as some of the froth has been taken off the top.

John Lewis’ December trading update has offered the retail sector a swift fill-up following the disappointment of Next earlier in the week. The upmarket retailer has seen 40% of its Christmas period revenue come from online sales and 35% of that has been subsequently collected from Waitrose outlets. This highlights why Sainsbury’s interest in Home Retail Group might not be the only M&A activity we see in this area over the  course of the year.

Ahead of Friday’s ever excitable non-farm payrolls figures we have today’s ADP employment data – not always the most accurate of indicators. Greater importance still will be placed on tonight’s FOMC meeting minutes, giving traders the opportunity to see exactly what was discussed in December when the trigger was finally pulled on a US interest rate increase. Ahead of the open we expect the Dow Jones to start 146 points lower, at 17,012.

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