Start of 2016 saw the fall of European shares on Monday, the first trading day. This was mainly after the global growth was predicted to be negative because Chinese published parameters indicating slow growth. Due to rising tensions of Middle East, oil prices increase saw bond yields to drop.

   Manufacturing activity in China was negative for the last ten months with the deceleration increasing in the last month. Hence as per Chinese surveys predict more delay in recovery.

   In addition, fixation of Yuan by the central banks touched a four and a half year low, triggering a fall in 7 percent CSI300 and trading had to be stopped by the stock exchange. Asian market’s reaction prompted the European markets also to retract with a 2.3 percent fall of pan-European FTSEurofirst 300 index FTEU3, 2.6 percent fall of euro zone’s blue-chip Euro STOXX50E and a fall of 3.4 percent in Germany’s DAXI.

   As the relations between the leading crude producer Saudi Arabia and Iran worsened due to Iran’s storming the Saudi embassy in response to the execution of Shiite cleric by Saudi Arabia Saudi Arabia cut diplomatic relations with Iran. It is expected that there could be supply disruptions in crude. Oil price increased as high as $ 38.5 before settling to $ 37.47 increasing the Brent, global oil benchmark LCOc1. This is in contrast to last year when the benchmark fell 35 percent because of global slow down.

   The above has led to the fall of Saudi Riyal and the jump in the SAR1Y to 680 points. The One year dollar/Saudi riyal forwards is a 16 year high.

   The offshore yuan fell as low as 6.6185 to the dollar CNH=D3, its weakest since early 2011. Onshore, the yuan CNY= hit its lowest since April 2011, at 6.5166.

    WHERE TO LOOK FOR INVESTING

   Investors are looking to seek the safety of bonds to overcome the above tensions as the German 10-year bonds DE 10YT = TWEB fell 6 basis points to 0,575 percent. The riskier assets getting rejected by the investors has led to the recovery of Japanese Yen against dollar dollar falling below 119 yen for the first time since October.

Gold XAU= jumped nearly 1 percent to $1,069.20 per ounce.

   U.S. Federal Reserve had its first rate hike last month after about 10 years. Investors are looking forward as to what level US Federal Reserve will further raise this year. Immediate attention will be to  Monday's ISM survey on U.S. manufacturing. The sector hit a low of 6 ½ years and is still not recovered.

   Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management opines "It was quite unusual for the Fed to raise rates when the ISM is below 50, (which indicates contraction). And we are likely to see another month of contraction. We have to see how long this will continue".