Morning Report Friday 29 January 2016
Equities have experienced a torrid time in 2016 with the ASX200 currently down 6% and the Dow down ~7.5%.
Over recent years we have had a number of varying events that have driven stock market corrections and therefore increased the volatility.
The VIX (Volatility Index) below illustrates that concerns over China in August 2015 created the largest market "panic" since the GFC.
The recent market weakness, and spike in the VIX, is currently similar in magnitude to the Japanese Tsunami of 2011 in magnitude.
A significant portion of the press has pointed to China as the culprit for stock market falls in 2016 but is it the main real driver? The chart below illustrates that the US stock market has been tracking the oil price extremely closely. This makes common sense to us as many market commentators in 2015 were mentioning China concerns after last August but none were talking oil under $US30/barrel.Hence currently picking the direction of oil appears to be the short term "key" to swings in stocks.
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