2016 got off to a turbulent start as ongoing concerns over global economic growth and falling commodity prices continued to weigh heavily on investor sentiment. China’s stockmarket was suspended after a 7% drop in share prices activated a so-called ‘circuit-breaking’ system designed to regulate volatility. The suspension led to sharp falls in equity markets around the world, and the system itself was subsequently suspended. The Shanghai Composite index plunged 22.6% during January, enduring exceptionally high levels of daily volatility. Elsewhere, the price of Brent Crude oil fell below $28 (£19.46) per barrel during the month to reach its lowest level since 2003.
The US economy registered annualised growth of 0.7% during the final three months of 2015, compared with 2% during the third quarter. Economic expansion was dampened by slower growth in consumer spending. US investors became somewhat jittery ahead of the impending corporate earnings season and the Dow Jones Industrial Average index fell 5.5% over January.
Japan hit the headlines towards the end of the month following the news the Bank of Japan had taken the unexpected decision to introduce a negative interest rate in a bid to encourage banks to step up their lending activity and kick-start inflation. The country’s core inflation rate rose by just 0.1% year-on-year during December. The Nikkei 225 index dropped to its lowest level in more than a year during January and fell by 8% over the month as a whole.
For their part, European investors were heartened by the news that policymakers at the European Central Bank were ready to “review and possibly reconsider” monetary policy at their next meeting in March. The ECB’s key interest rate currently stands at 0.05%. Nevertheless, the German Dax index fell by 8.8% and France’s CAC 40 index fell by 4.7% over January and share prices experienced significant levels of short-term volatility during the month.
Back in the UK, although the FTSE 100 index reached its lowest level for more than three years during January, UK share prices fared relatively well compared with other major equity markets. The benchmark FTSE 100 fell by a fairly restrained 2.5% over the month. The mining and energy sectors continued to come under pressure amid concerns over commodities and the outlook for China. The UK economy expanded at an annualised rate of 2.2% during 2015 as a whole, compared with 2.9% in 2014.