The three big concerns in 2015 were falling oil prices, China's economic slowdown and the never ending speculation about when the Federal Reserve would raise interest rates. Some of these issues continue into 2016.
Although the U.S. labor market heated up in 2015, enough for the Federal Reserve to raise interest rates on Dec. 16 for the first time in a decade, as the near year slips in, emerging data indicates that this may be changing.
The U.S. Labor Department said on Thursday that the number of Americans filing new claims for unemployment benefits rose 20,000 last week to a seasonally adjusted 287,000 for the week ended Dec.26. This may be a potential signal that the job market was losing steam although some of the increase might be attributed to temporary holiday factors. This could reintroduce speculation on the Fed’s decision to make additional rate hikes throughout the year.
Chinese Economy
Concern for further deterioration of the Chinese economy continues. According to JP Smith, a former analyst at Deutsche Bank, conditions in China look “as ominous as those in the U.S. on the eve of the 2008 financial crisis, and in Korea just before the 1997 Asian crisis.” Smith believes that Chinese stocks face greater downside potential than those of any other global market.
In addition, the slowing economic growth and structural reforms in China could likely contribute to a continued decreased demand for commodities, primarily oil and iron ore.
Other analysts, however, are betting China's economy is on track for a gradual slowdown. In a recent report, the Bank of America predicted that the country will undergo gradual currency devaluation as it shifts to a services-based economy.
The Fed, China and oil—old worries for the new year.