China

The South China Sea is continually paraded as a region rich in oil and gas deposits; however, no one really knows what’s there with any degree of accuracy. Furthermore, these possible deposits are shrouded in conflict that will not abate anytime soon, and will most likely worsen with an intensification of the security competition between China and the United States along with its regional allies, which is tightly related to these disputes. So, what deposits do these areas contain?

"The United States equity market has a down year. Stocks suffer from weak earnings, margin pressure (higher wages and no pricing power) and a price- earnings ratio contraction. Investors keeping large cash balances because of global instability is another reason for the disappointing performance."

The reckless herd has been in control for the last few years, but their recklessness is going to get them slaughtered. Corporate profits are plunging. Labor participation continues to fall. A global recession is in progress. The strong U.S. dollar is crushing exports and profits of international corporations. Real household income remains stagnant, while healthcare, rent, home prices, education, and a myriad of other daily living expenses relentlessly rises. The world is a powder keg, with tensions rising ever higher in the Middle East, Ukraine, Europe, and China. The lessons of history scream for caution at this moment in time, not recklessness. 2016 will be a year of reckoning for the reckless herd.

On the heels of a tumultuous weekend that saw Saudi Arabia cut diplomatic ties with Iran after the Saudi embassy was torched by protesters angry at the execution of a prominent Shiite cleric, CDS spreads for the kingdom have blown out to six-year wides while the implied odds of the riyal peg finally breaking are hitting new record highs.

Dispppointing drops in China and US Manufacturing PMIs, combined with a record glut, appears to have trumped Mid-East tensions and sent WTI plunging back into the red. This has triggered another round of selling in US equities, sending The Dow down 450 points and back to a "16" handle...

A lot of people were expecting some really great things to happen in 2015, but most of them did not happen.  But what did happen? A global financial crisis began during the second half of 2015 threatens to greatly accelerate as we enter 2016. This is what the early stages of a financial crisis look like, and the worst is yet to come.

Following China's disappointing drop in Manufacturing PMI overnight, this morning started off poorly with Canada's PMI crashing to its lowest reading since records began at 47.5. Then US Manufacturing PMI tumbled to 51.2 - its lowest print since October 2012 (with US factory orders collapsing to weakest since 2009). But The ISM Manufacturing crashed to 48.2 (deep in contraction) - the weakest level since June 2009, with employment bumping along at its lowest level since September 2009 and imports (reflecting domestic demand perhaps) crashed to levels only seen twice in 20 years.

Having been halted down around 7% overnight, China's CSI-300 index is extending its losses in US trading as ASHR (the CSI-300 tracking ETF) is down 9% - its biggest drop since the August collapse. This plunges Chinese stocks to 3-month lows...

With markets wrapped up for 2015 now, reviewing the performance of asset classes last year shows that it was one where negative asset class returns were aplenty, while those finishing in positive territory were few and far between. Indeed, of the 42 assets we monitor in Figure 5, just 9 finished with a positive return in Dollar-adjusted terms over the full year.  At the other end of the scale there were some notable losers.

It didn't take long for the momentum-chasing fundamental strategists to readjust their immediate stock price targets on the heels of the i) failure of the Santa Rally and ii) the worst start to the year in Chinese stock market history.  Case in point, moments ago JPM's equity strategy team released its first note for the year in which it says that "we take the view that equities are unlikely to perform well on a 12-24 month horizon" adding that "the regime of buying the dips might be over and selling any rallies might be the new one."

• China stocks tank, triggers circuit breaker (Reuters)
• Stocks Slump Across Europe and Asia Following Shanghai's 7% Crash (BBG)
• China Halts Stock Trading After 7% Rout Triggers Circuit Breaker (BBG)
• Iran says Riyadh thrives on tension after relations cut (Reuters)
• Saudis and Bahrain Face Off With Iran in Worst Clash Since 1980s (BBG)
• Syrian rebel group backs Saudi move to cut ties with Iran (Reuters)

It all started off relatively well: oil and US equity futures were buoyant on hopes Iran and Saudi Arabia would break out in a bloody conflict any minute boosting the net worth of shareholders of the military industrial complex, and then, out of nowhere, like a depressed China in a bull shop, the "mainland" crashed the party and it all well south very, very quickly...

Following the initial halt in CSI-300 Futures at the 5% limit down level, the afternoon session opened to more carnage and amid the worst 'first day of the year' in at least 15 years, Chinese stocks collapsed further to a 7% crash. At 1334 local time, stock trading was halted for the rest of the day across all exchanges (at least two hours early). Dow futures are now down over 150 points from NYE close, Gold and Treasuries are bid, and offshore Yuan has plunged most since the August devaluation.

With China closing the morning session limit down (and Yuan collapsing), US equity futures are extending their losses (even though crude futures are holding some of their gains). The initial knee-jerk jump as crude rose on Saudi tensions has been entirely erased and Dow Futures are now down 300 points from New Year's Eve highs... Happy New Year.

Earlier in the session, after the surge in oil prices on fears of a spike in belligerence between Saudi Arabia and Iran, bulls were hopeful that after a poor close to 2015, at least the first trading day of 2016 would set a positive mood: after all, if there is one thing war is good for, it is to lift stock markets. And it did... for about 3 hours.  Then moments ago, Caixin Media and Markit Economics released the latest December PMI, which was, in a word, a total disaster, one which promptly sent US equity futures sliding, and the Shanghai Composite tumbling some 4%... and CSI-300 Limit down.