Recap: Week Ending January 8, 2016

January 11, 2016

Equities in the United States sold off to mark the first full week of trading in the 2016 calendar. The sell-off last week marks the worst start to a calendar year ever. The NASDAQ 100 index lead the way lower falling 322.49 points or 7.02% last week to settle Friday at 4,270. The last time which the index traded at these levels was in September of last year. The S&P 500 performed a bit better, closing the week down 5.96% or 121 points before settling the week on Friday at 1922. Like the NASDAQ 100, the S&P has not traded at these levels since late September. The terrible start to 2016 comes as a global selloff in equities is emerging with all indexes following by MarketWatch selling off last week. The result of the selloff can be traced back to a number of variables, one of them being market turmoil in China. On Monday China released data that showed that manufacturing declined for the tenth straight month. As a result of the data, markets sold off heavily, activating a circuit breaker that halts trading when a selloff occurs greater than 7%. Many have been critical of these circuit breakers as they add more fear to the market as one is unable to trade once they have gone into effect, almost increasing the likelihood of one being activated. A similar circuit breaker was activated on Thursday as weakness was seen in the Chinese Yuan, which sent equities lower off the open. With this being said, between Monday and Thursday, the People’s Bank of China, or PBOC, fixed the Yuan lower than expected. Many took this as a signal that the Chinese economy is falling faster than expected and the central bank is attempting to prop up its exports. Similar concerns were brought forward early last summer that also rocked global markets. Furthermore, tensions in the middle east are once again high as conflict appears to be rising once again in many oil producing nations. As a result equities as well as the price of crude oil sold off. NYMEX crude oil fell again last week to settle at lows not seen in over ten years. The price of the energy product fell by $4.13 or 11.30% last week to end at $32.88. The selloff in energy without a doubt had spillover effects in the equity market like it has in the past.

The Canadian market was not immune to the selling pressure last week as the Toronto Stock Exchange Composite Index, or TSX, sold off as well. Last week investors and traders saw the Canadian benchmark index tumbled by 564 points or 4.34% to settle the week at 12,445. The move lower last week is the second straight weekly decline for the TSX, which is now trading at levels that have not been seen since August of 2013. The move lower in the TSX is a reflection of the global sell-off but also can be heavily related back to the weakness in energy. Additionally, a very weak Canadian Dollar has put pressure on Canadian equities. Last week the Dollar fell by more than 2.42% to settle Friday around 0.706 against the USD. Like the price of crude, these levels in the Canadian currency have not been seen for quite some time. The movement in the Canadian currency is highly correlated with that of the price of crude oil and has taken a hit recently as the price of oil has come down dramatically. With this being said there is a bright spot in the market. Last week investors sought safety in gold which rallied $43.60 or 4.11% to close at $1,104.10. The move higher in the precious metal was the largest seen in months and begs to ask the question is gold becoming the safety asset that is once was? The move higher in gold did without a doubt provide some support for the TSX, which would have moved even lower if gold did selloff. It will be important to watch gold in the coming weeks to see if it has yet once again regained its safety status.

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