Daily Market Color

Markets Remain on Edge with Focus on China and Middle East

US stocks are mixed to lower today while Treasuries rallied marginally after government intervention in China failed to boost investor confidence in the strength of the global economy.  After falling 7% during yesterday’s trading session, the Chinese benchmark Shanghai index finished little changed today despite Beijing’s new market maneuvers in both the foreign exchange and equity markets.  The People’s Bank of China conducted its largest reverse-repo operation since September, injecting nearly $20 billion into the financial system.  Additionally, China’s main securities regulator indicated that the ban on selling for major investors may remain in place after its previously expected expiry on January 8th.  Despite Beijing’s stimulus efforts, markets remain spooked by the lack of improvement reflected in recent disappointing manufacturing data.

Yesterday two senior Fed officials downplayed concern stemming from the volatile first trading day of the year.  Cleveland Fed President Mester said a weakening Chinese economy was already built into the Fed’s 2016 forecast, and that underlying US fundamentals remain on solid footing.  Mester expects growth of 2.5%-2.75% this year, and said the Fed should tighten monetary policy gradually in 2016.  Similarly, SF Fed President Williams said investors should come to expect slower growth from China as the country shifts “away from manufacturing and more towards consumer spending”.  Williams predicts US growth of 2.0%-2.5% and 3-5 rate hikes in 2016.

The data calendar is light today and there are no scheduled Fed speakers.



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