First Quarter 2016: A Winter Freeze and Spring Thaw
Chinese worries sparked a global market sell off in January before more optimistic data in March erased the earlier losses.
Chinese officials twice halted stock trading in early January as their policymakers’ efforts to limit stock volatility appeared to have the opposite effect. The stock market tinkering was the latest in a long list of official efforts to smooth the Asian giant’s bumpy transition to a consumer-driven economy. Investors here in the US, facing slowing demand from abroad and a tighter Federal Reserve at home, sold off stocks and high-yield bonds.
As the quarter continued, economic data releases improved. US GDP was revised upwards and private payrolls continued to expand robustly. The improvement in the job market has even brought in new job seekers, as the unemployment rate ticked up to 5.0% due to the marked increase in labor force participation. Wages, which the Fed has articulated as a key economic indicator that will determine the pace of this tightening cycle, rose modestly. Still, Fed Chair Yellen took a dovish tone in her most recent press conference, suggesting that the pace of rate hikes would not be as fast as first thought.
The European Central Bank expanded its bond buying program and the Bank of Japan set negative target interest rates as its 10-year government bonds yielded zero. The continued aggressiveness of the world’s central banks helped drag down interest rates across the globe as bond indices performed well over the first quarter.