Chinese Data & Middle-East Conflict Worries Investors

The first day of trading in 2016 didn’t get off to the brightest start as data from China weighed heavily on both European and American markets. Overnight, softer than expected manufacturing data in China resulted in the main Chinese stock market ending early as the index fell 7%. The manufacturing PMI printed at 48.2 last month, below expectations of 48.9 and marked the 10th straight sub-50 reading. At the same time, tensions in the middle-east weighed on investors’ minds as headlines have been dominated by news that Saudi Arabia (the world’s biggest oil exporter) has cut its diplomatic ties with Iran after Iranian protestors stormed Saudi Arabia’s embassy in Tehran. Basic resources stocks fell heavily on the back of these news events, with Anglo American leading the fallers during trading, ending the day -7.2%. Glencore and Antofagasta followed suit, ending the day more than 5% lower. As one of only two stocks to end the opening session of the year in positive gains, Randgold Resources ended the day +2.4% as spooked investors fled to Gold, the “safe-haven” commodity. At the time of writing, Gold is up 1.1%, falling back from intra-day highs of +1.9%.

In the UK, manufacturing PMI fell to 51.9 in December, its slowest pace for three months, down from 52.5 in November and 55.5 in October. Manufacturing failed to contribute to economic growth in the UK throughout the first three quarters of 2015, and with what has been regarded as disappointing end to the year, it seems the manufacturing sector will only make a marginal positive contribution to economic growth in the Q4.  Elsewhere in the UK, data from the Bank of England showed that lending to British households rose in November to its highest monthly total in more than seven years. Britons borrowed £5.4bn (net of repayments), the largest monthly increase in lending since April 2008. The increase was driven by a rise in both mortgage lending, and unsecured borrowing (such as credit cards and store cards). Whilst inflation remains near zero (BoE’s target is 2%), an interest rate rise in the UK doesn’t seem imminent, however, there is worry that should interest rates rise, some households may struggle with repayments.

At the close all European indices are in the red. The FTSE 100 closed down-2.4%, the CAC 40 -2.5%, and the DAX -4.3%. US indices are not fairing so well with the Dow Jones down -2.5% whilst the S&P 500 is 2.4% lower at the time of writing.