2016 seems to have started with the mother of all economic hangovers. Investor confidence, or rather the lack of it, hit Chinese stock markets hard on the first trading day of the year with falls significant enough (7%) to trigger an automatic suspension of trading. The Asian malaise quickly spread through regional markets and into European and US markets as January started with a jolt into the red. The demise in stocks seems to have been sufficiently great to scare institutional Forex investors to buy the Yen, a traditional safe-haven currency, until the storm abates. The Euro bought 131.07 Yen on New Year’s Eve and it now buys just 127.19. Similarly, the Dollar has fallen from 120.31 to stand at 118.96 Yen as investors run before the storm. However, the slowdown in the Chinese economy will hardly have caught anybody by surprise, so a process of normalisation is likely to set in.
To add an appropriately upbeat start of New Year’s trading to proceedings, it is worthy of note that the Eurozone has raced ahead to its best growth level for a whopping four months (any port in a storm…). According to the December Purchasing Managers’ Index, combined service and manufacturing activity in the block rose to 54.3, upon revision. Consequently, "the Eurozone economy starts 2016 on a solid footing," according to Markit. Their survey also suggested that private sector job growth in December was the fastest rate of increase since May 2011 which is a source of seasonal good cheer.
The figures are consistent with a modest projection of a 0.4% growth in the bloc’s GDP in Q4 which would equate to a full-year growth figure of 1.5%. Given that the ECB has been actively engaged in QE measures for nine months now, the relatively modest growth could force the ECB into greater monetary easing to stimulate the economy – given that inflation held steady at 0.2%; a tenth of its desired level.