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Sat12162017

Last updateSat, 29 Jul 2017 12am

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Why markets fall in 2016?

Year 2016 started with market rout.  What is the cause for the rout?  We believe the cause for the rout may be attributed:  Oil, China and the Fed.

First of all, the Oil price.  The oil price has fallen below $30 per barrel.  What is the implication?  It would impact on the high yield bond market because a lot of the energy companies are high yield.  Year 2015, we saw US high yield bond not performing.  There were huge redemption in US High Yield bond funds...As the oil price falls further, corporate default rate would rise.  We shall be seeing more corporate bonds downgraded and an increase in companies default, especially from the energy sector.

Next is China.  China's economy is in transition from manufacturing oriented to service-based.  Further to that, as China's RMB had gained the Special Drawing Rights (SDR) status, China unpegged its currency against dollar to a basket of currencies. 

Last but not least, is the comment put forwarded by the Fed. Accordingly, St. Louis Fed President James Bullard reiterated the belief that it would be appropriate to hike rates four times this year.  Then, Fed Vice Chair Stanley Fischer commented that the market was underestimating how many hikes would be delivered this year and expressed concern about potential bubbles in asset prices...

Reference

Bloomberg, Luke Kawa, 2016-01-18, "Koo: The Fed's Communication Shift is Behind January's Selloff"