Chinese circuit breaker scrapped – 11th January 2016

China’s circuit breaker was triggered twice last week when the Shanghai stock exchange lost 7% of it’s value as panicked investors tried to sell off their assets. The concept of circuit-breakers has been around for some time and then can work, preventing excessive price movements by halting trade however, when introduced on the fly to prevent falling prices, investors feel under more pressure and the momentum of selling stocks gathers.

Shanghai therefore scrapped the circuit-breakers on Thursday and today, Chinese stocks didn’t fall but they are down by -15% for the year so far. Today’s decline of 5% though was enough to unnerve investors and put the skids under “risky” currencies such as the NZ Dollar which is down 4% and the Aussie Dollar by 0.6% today.

At the end of last week, US non-farm payrolls jumped by 292,000 in December and were assisted by a 50,000 upward revision to the numbers for October and November. The US Dollar did strengthen after the announcement but not by much.

Usually, the incredibly bullish payrolls figure would have sent the US Dollar higher, on the rationale that strong employment would assist the Federal Reserve’s path towards higher rates. But we’ve been there, done that now. The Fed raised interest rates last month and more increases are expected this year. Now, logic has it that strong employment = higher interest rates but we all know that the currency markets rather follow logic.

As usual, the abandonment of risky assets was matched by the take-up of safe ones, notably the Japanese Yen, which strengthened by 1.5%. Sterling was somewhere in the middle, just about unchanged on average.

Today’s most important data came out as London opened, with Swiss December retail sales down by -3.1% from the same month in 2014.  Before London opened, Chinese producer prices fell by -5.9% in the year to December and inflation was a tick higher at 1.6%. NZ building permits issuance slowed in November, increasing by 1.8%.