Jeremy Cook, chief economist at foreign exchange firm World First, says China’s economy will drive world markets next year.
He also warns that Britain’s upcoming vote on whether to stay in the European Union could hurt sterling:
“As we move into 2016 it will be the ability of the Chinese authorities to stabilise economic growth that will shape the global outlook. China at the moment is feeling the blowback of years of investment driven growth with industries chock full of unproductive factories, a housing sector with a significant stock overhang and ensuing high debt levels in local government and corporate balance sheets.”
“Risks of another global downturn will continue to favour the US dollar as the true currency of safe haven flows. There are reasons to be optimistic in 2016 around global growth but risks from China, Eurozone and Latin America balance will still exist.”
“The build up to a UK referendum on EU membership will be a major source of instability on the British pound and the prospect of a possible ‘Brexit’ makes pricing the risk of the referendum a thankless task at the moment.”
As predicted, shares on Wall Street are dropping in early trading.
The S&P 500 index has lost 0.3%, putting it back in the red for the year.
And the Dow Jones industrial average is down 100 points, or 0.6%. That means the Dow is 2% down this year.
Despite finishing the year in the red, the FTSE 100 did hit some new highs in 2015.
The Press Association has the details:
February 24 saw the London market break a record that had stood for more than 15 years as the FTSE 100 hit a new all-time high, boosted by investor optimism about the financial crisis in Greece.
Britain’s benchmark index of leading shares closed at 6958.89, which meant the FTSE 100 finally surpassed its previous intraday peak of 6950.6 set on December 30 1999, just before the dotcom bubble burst.
The index reached a series of all-time highs before hitting its peak of 7104 on April 27, boasting a total market value of 2 trillion.
But all this was to change in the summer as China’s economic woes began to unfold.
Global markets were spooked as China posted slowing gross domestic product figures of around 7% after almost a decade of double-digit growth.
Joshua Mahoney of IG suggests that the London stock market will be driven by speculation over UK interest rate rises next year:
2015 has seen the FTSE moving in an inverse manner with inflation, with falling inflation in early 2015 treated with glee by investors, yet as disinflation fears were allayed in H2, we have seen the FTSE pull back in anticipation of a more hawkish BoE stance.
Given that disinflation fears have been driven largely by the fall in oil prices, there is reason to believe that 2016 will also see sentiment largely driven by the movement of oil prices, their impact upon inflation expectations and the subsequent monetary policy stance from the BoE.
Analysts at RBS point out that the FTSE has now recorded two annual declines in a row:
London’t main stock index was one of the few major benchmarks to lose ground this year (although America’s Dow Jones industrial average could follow it).
Here’s how things finished.
- FTSE 100: -4.9% during 2015
- German DAX: + 9.85%
- French CAC: +8.5%
- US Dow: -1.2% (before today’s trading session)
- Japan’s Nikkei: +9%
- China’s Shanghai Composite: +9.5%
The US stock market is expected to follow London’s lead, when it opens in an hour’s time:
FTSE 100 posts 5% loss for 2015
London’s stock market has closed for 2015, after a less than stellar performance.
The FTSE 100 lost 31 points today, or 0.5%, to finish at 6,242. That means the blue-chip index has lost almost 5% of its value since the start of this year.
More dramatically, the FTSE 100 has lost 12% of its value since hitting its record high in April.
Could there be a rally next year?
Britain’s biggest bookmaker William Hill, reckons the FTSE 100 will end 2016 close to its current level.
Spokesman Rupert Adams says:
“We don’t see a vast amount of movement in the FTSE 100 this year.”
It’s offering odds of 6/4 that the index ends 2016 between 6000 and 6499 points.
It is 5/2 to be below 6000, and 7/2 to be over 7000.
The oil price is dipping into the red, knocking almost 1% off the price of a barrel of US crude.
That won’t help the ruble very much.
We’ve pulled together a map showing where today’s oil rig evacuations took place:
Sky News’s map shows a few other oil fields too:
Reuters data whizz Vincent Flasseur has pulled together some handy charts, showing the scale of the rout in commodity prices this year:
News from the North Sea: The barge that was threatening to hit BP’s oil platform in Valhall has missed the installation.
It’s not clear how soon BP staff will be returned to the site after being evacuated this morning, or whether other platforms are still at risk, though.
Back in London, the stock market is shuffling its way towards the new year.
With just over an hour to go until the early finish, the FTSE 100 index of blue-chip shares is down 0.3% or 18 points at 6,256.
France’s CAC has lost 0.2%, while the German exchange is closed.
Unless something remarkable happens soon, the Footsie will post a loss of nearly 5% this year – after hitting a record high of 7,103 in April.
Conner Campbell of SpreadEx says global indices are staging a “limp, whimpering finish” to 2015.
After a year that began so promisingly the markets are wrapping up 2015 in the limpest way possible, a collective sigh instead of any attempt at New Year’s Eve fireworks.
The stormy weather in the North Sea has claimed one life already this week.
A rig operated by energy company Statoil was hit by a “heavy wave” yesterday, killing one worker and injuring two more.
BP is evacuating a North Sea platform right now
Oil giant BP is scrambling to evacuate staff from a platform in the North Sea, because a barge is drifting in the area.
Workers at its plant at the Valhall operation are heading for land, after the unmanned vessel broke from its moorings in rough seas.
A spokesman told Reuters that:
“The barge has changed direction and BP has decided to shut production [at Valhall] and there will be a total de-manning of the platform. There are 71 people left on the platform and they are being evacuated as we speak.”
And BP isn’t the only producer taking precautions.
Norwegian TV are reporting that Conocophillips is evacuating staff from a platform at the Eldfisk field (adjacent to Valhall).
Tomorrow could be another red-letter day for Puerto Rico, and those investors who have loaned money to the US territory.
Puerto Rico is expected to default on $37m of debt obligations, as its ongoing financial crisis worsens. It has already defaulted once, in August, sparking suggestions that Puerto Rico is America’s Greece.
Puerto Rico’s national debt now totals $73bn, which the government says is unsustainable. But as it cannot legally declare bankruptcy, it is forced to cut vital services, plead for relief from creditors, and default on payments in an ad hoc manner.
More rouble trouble ahead?
The slump in the rouble will hurt Russian families by pushing up the cost of imported goods, and make an overseas trip even pricier.
Our Moscow correspondent Shaun Walker explains how the currency could fall further in 2016:
Some analysts say the rouble is still overvalued, and the current oil price should theoretically push the rouble down further. This is necessary to balance the budget: the fewer dollars Russia receives for the oil it sells, the higher the exchange rate needs to be for the budget to receive the requisite amount of roubles. For the budget to balance at 65 roubles, not far off the current rate, the price of oil should be $70, a recent Bank of America Merrill Lynch report found.
For ordinary Russians, it could be a tough year ahead. Those who were used to travelling abroad have already had to scale back as the rouble made the cost of visiting foreign cities prohibitive; and rising food prices have made it harder to balance the books for many families.
The 2016 budget, fixed in October, requires oil to be at $50 in order to run a 3% deficit within “acceptable” rouble rate limits, meaning if the price does not rise soon, cuts will need to be made or reserves spent. The war in Syria is an extra cost, and the announced increases in military spending are not likely to be reversed.
An underwhelming start to trading in London has send the FTSE 100 down by 17 points, or 0.3%, to 6257.
Augustin Eden of Accendo Markets says:
A continued slide in the oil price and a US Dollar that’s not going down without a fight are dominating sentiment as people begin to attempt their 2016 forecasts, seeing headwinds for long term earnings.
Sports Direct’s New Year pay pledge is worth around 15p per hour to around 15,000 workers at its stores (many on zero hours contracts) and some 4,000 agency staff at its depot.
Retail analyst Nick Bubb says it could improve the company’s public image, at a price….
Mike Ashley’s New Year resolution to be a better employer will go some way to improve Sports Direct’s battered PR image, but it will knock c£10m off the profit base…
Campaigners underwhelmed by Sports Direct move
Sports Direct’s pledge to raise staff wages isn’t enough, say campaigners:
Alex Flynn, head of media and campaigns at the Unite union, told the Guardian he was “massively underwhelmed” by the news from Sports Direct.
“Mike Ashley, if he’s serious about Sports Direct being one of the best retailers in terms of how it treats its staff on the high street, it’s got a massive way to go.”
Three weeks ago, the Guardian exposed work practices at Sports Direct’s warehouses – including that staff are effectively being paid under the minimum wage due to lengthy security checks.
And now, the retailer has announced a £10m plan to raise wages over the legal minimum.
In an interview with the Daily Mirror, CEO Mike Ashley struck a remarkable tone, declaring:
“I realise this is ambitious and it won’t be easy, but I believe as a FTSE 100 or even 250 company we have a responsibility to set a high moral standard.”
That’s the spirit, Mike. Now, what about those staff who are afraid to take a sick day?
Commodities index hits 13-year low
2015 really has been a rough year for commodities.
Fears over China’s slowing economy, and the knock-on effect on emerging markets, has sent the prices of metals and energy stocks slumping.
Copper has shed around 25% of its value this year,
Oil: down 35%
Iron ore: down 40%
And that has sent the Thomson Reuters Core Commodity Index down by a quarter over the year, to hit its lowest level since 2002.
Some investors are calculating that prices may have bottomed out. But there’s also a possibility that prices could keep sliding.
Mark To, head of research at Hong Kong’s Wing Fung Financial Group, says there could be more trouble ahead:
”Slowing economic growth and structural reforms in China might contribute to decreased demand for commodities.”
Oil price fell by a third in 2015
A quick glance at the oil price shows exactly why the rouble is so weak.
Brent crude began 2015 at around $58 per barrel, and climbed up to $68 by April. But it has since slumped to below $37, a loss of around 35%.
That’s waaaaay below the break-even point for oil producers (Kuwait needs around $52 per barrel while Saudi needs $96, for example).
The Financial Times’s energy editor, Ed Crooks, has stuck his neck out and predicted oil will recover in 2016:
Brent crude below $50 per barrel is too low for the industry to make the investments needed to meet growing global demand. Providing the world economy does not skid into recession, this looks like being the year that the oil price heads back to more sustainable levels.
Other FT predictions for 2016 include Belgium winning the Euro 2016 football championship, and Angela Merkel being ousted, Thatcher-style by her party….
The Russian rouble could suffer further losses in 2016, unless the oil price bounces back soon.
Alexey Korolenko, a money manager at UralSib Asset Management in Moscow, warns:
“The ruble may weaken further.”
“It’s hard to expect stronger oil right now. It should rise to $45-$50 per barrel, maybe, by the end of 2016. Reduction of investments should eventually make impact, the question is what the lag will be.”
That’s via the Wall Street Journal, who point out that Russia’s manufacturing sector is contracting again (according to data released yesterday). More here:
Rouble hits record low
Over in Moscow, it’s a bracing minus 9 degrees Celsius on the final day of the year.
And the Russian rouble is getting an equally chilly reception in the foreign exchange markets, where it has hit fresh lows this morning.
One US dollar was worth a mighty 74 roubles early this morning – a record high – as Russia’s currency continues to suffer from the weak oil price.
As this chart shows, it has halved in value since autumn 2014:
The rouble is being thumped after new figures released yesterday showed a rise in US oil stocks, suggesting the glut in energy reserves is still growing.
That’s clearly bad for Russia, given its reliance on oil exports.
Matt Weller, senior technical analyst at Forex.com, explains (via Marketwatch).
“We’re getting a big drop in oil attributable to the rise in inventories and that is spilling over into commodity currencies.”
Oil’s recent rout could cause Russia a serious headache. It’s 2016 budget is based on a price around $50 per barrel. Crude is currently trading below $37 this morning…
Introduction: Markets end 2015 in jittery mood
Good morning, and welcome to our final business live blog of 2015, covering events across the financial markets, the world economy, business and finance.
And what a year it’s been. We’ve not been short of drama – with the Greek debt crisis dominating the first nine months of the year.
There’s also been plenty of market turbulence (thank you, China!), the commodities rout, deflation in the eurozone, and the Volkswagen emissions scandal.
But it’s not been a vintage year for investors. Britain’s FTSE 100, for example, has lost almost 5% since January – partly due to the slump in the mining sector.
And European markets are expected to be subdued today, meaning little fun for those traders who struggle into the City.
Asian markets have already ended the year on a quiet note, with China’s main indices down almost 1% and Australia losing 0.5%.
IG analyst Angus Nicholson says there are concerns that 2016 could start badly:
Concerns about traders coming back from holidays in January and aggressively selling off the market may have driven a number of investors to take some of the profits off the table after the good run we have seen over the holiday period.
How appropriate that December’s excess could be followed by a nasty hangover….
I’ll be tracking all the main events though the day, looking back over the last 12 months and ahead to 2016….
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