It’s been another volatile week for the markets, which has kept investors very much on edge and unsure about what surprises the weeks ahead will bring.
In many ways, this has been a week of markets finding their feet again following a dreadful start to the year, triggered primarily by strong selling in Chinese currency and equity markets. Despite all the volatility, equity markets in Europe have thus far managed to avoid large scale losses and, prior to today’s session, are relatively unchanged on the week.
This may have been helped by the efforts of the People’s Bank of China to stabilise the yuan, following talk of intervention in the markets to curb any more selling. Unfortunately, this wasn’t enough to prevent more losses in its equity markets with the Shanghai Composite currently trading down more than 6% on the week, 17% since the start of the year, testing August’s lows around 2,850.
It will be very interesting to see how investors respond today ahead of the weekend. Strong risk aversion ahead of the weekly close is a clear vote of no confidence in the markets, which doesn’t bode well for the coming weeks. It may suggest that rather than seeing stabilisation this week, what we’ve actually witnessed is the calm before the storm. I’m sure this will largely be determined by how Asian markets open next week.
Also of note today will be moves in oil, which has had another rough week, with Brent crude down almost 10%, taking its losses for the first two weeks of the year to almost 20%. The psychologically and technically important $30 a barrel level looks likely to come under pressure again in the coming days, with a break looking likely given just how bearish the market is on oil right now. While this may at times indicate an overcrowded trade and be a contrarian indicator, I feel there is still some downside left in this and oil in the low 20’s is a very real possibility.
Also in focus today will be the data out of the U.S., with retail sales, PPI inflation, empire state manufacturing, industrial production, capacity utilisation and consumer sentiment figures all being released. That should ensure an interesting and volatile end to the week, very much in-keeping with how the rest of the week has been.