Many people start a new year with renewed optimism. However, "New Year, Same Problems" is the meme of 2016... and recent trading has dashed some of that optimistic 'This time it's different' hope.
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NEW YEAR, SAME PROBLEMS
Most investors and central bankers find themselves between a rock and a hard place to start 2016.
The Federal Reserve finally raised rates in December, but mainly in the interest of preserving credibility [13].
While unemployment itself has looked good enough and there has been some wage growth, the labor force participation is at 62.5%, which is essentially its lowest mark since 1977. Meanwhile, the stock market has been volatile, junk bonds [14] have been hammered, and manufacturing contracted [15] in December at the fastest pace in the U.S. in more than six years.
Most major central banks still have rates close to zero, which gives little policy ammunition for any additional stimulus. The flipside of these record-low rates has been soaring (or extremely bubbly [16]) asset prices that have failed to trickle down to Main Street.
A slowing China and general oversupply has led to slumping commodity prices.
Oil has been hammered down to its lowest price since 2003. Copper is trading at $2/lb, which is comparable to its price during the Financial Crisis. These low input prices, in theory, are great for consumers and manufacturers. In reality, however, they usually mean that economic growth is grinding to a halt.
It’s hard to say where markets will turn in 2016, but for now it will continue to be much of the same volatility until the picture becomes clearer.
Original graphic by: The Straits Times [17]
