The first few weeks of 2016 have been pretty eventful for the financial markets, spurring big hits or misses for traders and investors. Here are some of the biggest shocks so far:
Global Equity Slump
Stock markets were off to a rough start, triggered mostly by another sharp selloff in the Chinese markets and desperate measures by their authorities to stop the bleeding. This led global equity markets to erase massive amounts of capital in a span of a few days, causing US stock indices to chalk up one of their worst weekly opens in years.
Speculations about the start of a bear market worsened the declines, weighing on financial confidence and company profitability. It didn’t help that a number of US companies reported weaker than expected earnings data for the previous quarter, yielding more losses for their shares.
Central bank officials all over the world have taken note of these declines, with Fed Chairperson Janet Yellen herself admitting that the equity slump could wind up hurting overall economic growth in the US. Other monetary policy officials also expressed concerns about the repercussions of this selloff on their economic prospects, reiterating the need to keep policy accommodative for now.
Negative Deposit Rates in Japan
One such central bank is the Bank of Japan, which recently decided to implement negative deposit rates. In doing so, they could encourage lending activity by discouraging commercial banks from leaving cash parked in their vaults.
This came as a big surprise since BOJ head Haruhiko Kuroda has previously been giving an upbeat assessment of the Japanese economy, insisting that they’re on track to meet their inflation goals and that the country could rely on its resilient export industry.
However, monetary authorities took the recent global market situation to consideration and decided that it was about time to provide more stimulus to the economy. For some analysts, this marks the start of a shift to a more dovish stance among most central banks, although others are still holding their firepower and counting on their previous easing measures to take effect.
Crude Oil Selloff
Another major-market mover so far this year is the crude oil slump, which carried on from the previous year. At that time, commodity-dependent nations such as Canada and Australia suffered an economic downturn, prompting their central banks to cut interest rates.
This time, the OPEC’s stubbornness to cut oil production in order to prop up supply has been putting additional downward pressure on price levels. It didn’t help that Iran’s return to the world oil export market with a pledge to ramp up production now that Western sanctions have been lifted is also keeping oversupply issues in play.
While some oil-producing nations have expressed their desire to trim production, Arab states are refusing to back down, hoping that their hardline stance could eventually drive other rival producers such as the US out of the market. As it is, a number of energy companies are already feeling the squeeze and reporting large declines in profitability.
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