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Happy New Year! (From Shanghai…maybe not)

| January 04, 2016
MPCA Weekly Market Update

Today’s market selloff is certainly not what we all had in mind as we wished each other a peaceful and prosperous New Year last week, at least as relates to the prosperity part of that greeting.  Domestic equities are taking their lead from European and Asian markets on renewed China fears, and trading screens are mostly red this morning.

Today’s weak factory sector data out of China reminds us of the market’s persistent China growth worries. The December Purchasing Manager Index (“PMI”) survey by Caixin Media and Markit came in weaker than expected at 48.2 vs. 48.6 in November, the tenth straight monthly reading below 50 from this key private-sector measure.

This follows the “official” Chinese government’s PMI measure that showed a modest improvement for the month, but remained below the 50 mark. The PMI data raises doubts about the efficacy of fiscal and monetary policy measures aimed at stabilizing the Chinese economy’s growth profile.

A new circuit-breaker system for the Shanghai stock market that went into effect today got triggered by the sell-off following the weak PMI survey and depreciating currency, with the Shanghai Composite ending the session down -6.8%. All major Asian markets were down following the Shanghai selloff, as are most of the European markets, with Germany particularly hard hit given its above-average China exposure.

Here at home, the ISM manufacturing index declined to 48.2 in December, below the consensus expected level of 49.0, and below the 50 level that signals expansion.  This is the lowest level for the manufacturing index since the end of the recession in 2009.  While investors would prefer that manufacturing exhibit the same solid pace of recovery as the much larger services sector, market bulls would point to the brisk expansion and rising prices in services as far more significant to economic vitality overall.

Today’s turmoil brings back memories of last summer when global markets were similarly hit hard by a selloff in Chinese stocks. In fact, part of the reason why the Fed held back on announcing a rate hike at its September meeting was such China-centric market uncertainty. So while the calendar now reads 2016, many of the issues that preoccupy the markets in the New Year may carry some familiar echoes from the recently-departed 2015.

Our best wishes for your peace and prosperity still stand, regardless of the market’s downbeat mood today, as does our commitment to help you walk with wisdom through whatever comes our way in 2016.  Happy New Year!