Year-to-date Scenario

The global markets have been under pressure from the last few weeks impacted by the weakening investors’ sentiments over economic growth on the back of Chinese move of devaluation of its currency coupled with Bank of Japan interest rate cut to less than zero, ongoing fall in commodity and oil prices as well as a potential possibility of more than anticipated interest rate hike by US fed despite volatile conditions. Janet Yellen, the US Federal reserve’s Chair commented that further rate hikes may be introduced (US Fed made a rate hike in December 2015 after 2006) even though the US economy is challenging. Accordingly, the S&P 500 (INDEXSP: .INX) decreased 5.73% this year to date (as of February 17, 2016). The tough market conditions across the world also impacted Australian markets with its S&P/ASX 200 (INDEXASX: XJO) dropping over 5.82% during this year to date (as of February 18, 2016). Moreover, Australia’s trade gap reached AUD 3.54 billion during December of 2015, which is lower than the market expectations and an increase of 30% against the downwardly revised AUD 2.73 billion deficit in November 2015. This is the major deficit against June of earlier year impacted by decrease in exports than the imports. As per the Asian markets, the Nikkei 225 (INDEXNIKKEI: NI225) plunged 14.87% % this year to date (as of February 18, 2016) while SSE Composite Index (SHA: 000001) declined by 19.12% during the same period. India’s NIFTY 50 (NSE: NIFTY) index also fell over 9.85% during this year to date impacted by the global markets turmoil as well as major banks performance pressure.
 

China GDP and Momentum Indicator (Source: Thomson Reuters)
 

Market-wide Corrections

On the other hand, the heavy correction placed the Asian and Australian markets at reasonable valuations given the recovering European, Asian and Australian economies since the last few months. In addition, with the Nonfarm payrolls in the United States delivering a lower rise by 151,000 (seasonally adjusted) in January 2016 as compared to the December of 2015 (with the unemployment rate declining to 4.9% in January 2016 as compared to 5.0% in December 2015), Janet Yellen recently reported that they might postpone the coming month’s rate hike if the market conditions continue to be under pressure and are not favorable. As a result the S&P 500 (INDEXSP: .INX) recovered over 2.47% in the last five days alone (as of February 17, 2016).
 

Recent Momentum

 
Responding to the challenging Australian markets performance in the last few weeks, Glenn Stevens Reserve Bank governor commented that it was too quick to comment on the recent global market “negative impact” on the aggregate demand in Australia. He further stated that Australia’s banks are decently positioned despite the falling oil and commodity prices pressure and hence their might not be any necessity of increasing rates in the near term. Glenn Stevens noted that Australia’s economy’s expansion is ongoing reaching over 2.5% along with strong employment generation, despite the decrease in capital spending in the resources sector as the mining firms are witnessing huge losses on the back of commodity prices turbulence. Therefore, Australian S&P/ASX 200 (INDEXASX: XJO) recovered over 2.1% in the last five days alone (as of February 17, 2016). Meanwhile, the Nikkei 225 (INDEXNIKKEI: NI225) index recovered over 6% in the last three days (as of February 17, 2016) while SSE Composite Index (SHA: 000001) and NIFTY 50 (NSE: NIFTY) index improved by 4.57% and 2.9%, respectively (as of February 18, 2016) in the last three days.
 

Results of Panel Discussion February 2016 (Source: Thomson Reuters)
 
On February 18, 2016, Asian stocks in general have spiked with crude oil extending gains at the back of probabilities of big producers capping output. This, in a way would boost investor sentiments for riskier assets. Recovering oil prices also may support the rebound in global stocks. As we enter the next month, investors would be tracking the possible stimulus from the European Central Bank and Bank of Japan as well as the cooperation from the G20 nations. Global markets would also track the implementation of production decrease by OPEC to control the ongoing decline in the oil prices, which would consequently boost the equity markets.

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